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Ruling

Subject: Carrying on an enterprise 'v' realisation of a capital asset

Question

Does your sale of the property constitute a taxable supply?

Answer

No, the sale of your property will not constitute a taxable supply.

Relevant facts and circumstances

You are not registered for GST

In the mid 1990s you purchased a block of vacant land (the property) as joint tenants.

The property adjoins your residential property.

The property was purchased to provide your children with additional area to play.

The property has been held as a capital asset

The property has not been used for any business purposes and has never generated any income.

You have recently been approached by another entity in relation to purchasing the property.

The property will be sold as vacant land.

The sale contract will be conditional upon you consenting to a Development application lodged by the purchaser for the development of the property and the subsequent approval of the application by the local Council.

You have not and will not be conducting any works on the land to satisfy the requirements of the Development application.

The proposed settlement date is specified in the sale contract.

You have purchased a small number of residential properties and vacant blocks of land over the past 20 years (approximately).

You have sold all but one of the vacant blocks of residential land.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

Section 9-5

Section 9-40

Section 9-20

Section 23-5

Section 188-15

Section 188-20

Section 188-25

Reasons for decision

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that GST is payable on taxable supplies made by an entity.

The term 'taxable supply' is defined in section 9-5 of the GST Act and includes the requirement that the supply is made in the course of carrying on an enterprise and you are either registered or required to be registered for GST.

Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number provides guidance on the meaning of 'enterprise' for the purposes of entitlement to an Australian business number.

Paragraph 1 of Goods and Services Tax Determination GSTD 2006/6 Goods and services tax: does MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999? provides that the guidelines in MT 2006/1 are considered to apply equally to the term 'enterprise' as used in the GST Act and can be relied upon for GST purposes.

Carrying on an enterprise

What constitutes an enterprise for GST purposes is defined in section 9-20 of the GST Act and includes an activity, or series of activities done:

· in the form of a business; or

· in the form of an adventure or concern in the nature of trade; or

· on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.

In accordance with paragraph 159 of MT 2006/1, whether or not an activity, or series of activities, constitutes an enterprise is a question of fact and degree having regard to all of the circumstances of the case.

Paragraph 234 of MT 2006/1 distinguishes between a business and an adventure or concern in the nature of trade. It provides that the term business would encompass trade engaged in, or on a regular or continuous basis. However, it goes on to say that an adventure or concern in the nature of trade may be an isolated or one-off transaction that does not amount to a business.

Based on the information provided, the sale of the property will be a one-off activity, and is not an activity or series of activities done in the form of a business, or part of a series of property development and/or property trading activities. Therefore, we shall consider whether your subdivision activity is an activity done in the form of an adventure or concern in the nature of trade.

Paragraph 244 of MT 2006/1 provides further guidance on adventures and concerns in the nature of trade. It states:

244. An adventure or concern in the nature of trade includes a commercial activity that does not amount to a business but which has the characteristics of a business deal. Such transactions are of a revenue nature. However, the sale of the family home, car and other private assets are not, in the absence of other factors, adventures or concerns in the nature of trade. The fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature.

There are several other points raised by MT 2006/1 which are of relevance to your circumstances:

Assets can be categorised as either trading assets or investment/capital assets. Assets purchased with the intention of holding them for a reasonable period of time, to be held as income producing assets or to be held for the pleasure or enjoyment of the person, are more likely to be purchased for investment purposes and not trading purposes (paragraph 258).

Examples of investment/capital assets are rental properties, business plant and machinery, the family home, family cars and other private assets. The mere realisation of investment/capital assets does not amount to trade (paragraph 259).

The mere realisation of a capital/investment asset is not considered to be activities of carrying on a business or an adventure or concern in the nature of trade (paragraph 263).

We now need to determine whether the sale of the property is an activity with a commercial flavour that goes beyond the mere realisation of an investment/capital asset.

The original purpose for the purchase of the property was to hold the property as a capital asset investment whilst providing your children with additional area to play.

You have not and will not be conducting any works on the land to satisfy the requirements of the development application.

The number of properties you have purchased and sold over the past 20 years indicates that you do not have a history of property development.

Given the above, we consider that the sale of your property does not have the characteristics of an adventure or concern in the nature of trade but rather it will be the mere realisation of an investment/capital asset. Hence, the supply of the vacant land will not be made in the course or furtherance of an enterprise.

It should also be noted that whilst the execution of the contract is conditional upon your consent to a Development application being lodged by the proposed purchaser and that application being approved by the relevant Council, such conditions do not change the nature of the transaction being the mere realisation of a capital asset.

GST registration

As stated above, you are not registered for GST. As such, we need to consider whether you are required to be registered for GST.

You are required to be registered for GST if you are carrying on an enterprise and your annual GST turnover is $75,000 or more (unless you are a non-profit body).

Conclusion

We consider that your activities relating to the sale of the property do not amount to you carrying on an enterprise for GST purposes and that you are neither registered nor required to be registered for GST.

As such, the sale of the property will not be a taxable supply.