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Ruling

Subject: GST and sale of residential property

Question

Is the sale of the residential home subject to GST?

Answer

No, the sale of the residential home is not subject to GST.

Relevant facts and circumstances

You purchased a block of vacant land post July 2000 under margin scheme from a vendor who was registered for GST.

Since then you have built a house on the property and it has been your principal place of residence.

The rest of the land has not been farmed or developed by you although you have leased it out to a local farmer on an ad hoc basis in the past. You have ceased leasing to him in the last few years.

The income from the leasing of your property to the farmer has not been reported in your tax return as you have been on the pension a few years ago and do not have to lodge a tax return because of your low income.

The land around the house has been assessed by a government agency as being unable to be used to produce an income so you have used it for lifestyle purposes.

You put the house on the market to sell.

This is your only property.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

A New Tax System (Goods and Services Tax) Act 1999 Section 9-20

Reasons for decision

The sale of your residence will be subject to GST if it meets the requirements of a taxable supply.

Section 9-5 of A New Tax System (goods and Services Tax) Act 1999 (GST Act) provides:

You make a taxable supply if:

· you make the supply for *consideration; and

· the supply is made in the course of furtherance of an *enterprise that you *carry on; and

· the supply is *connected with Australia; and

· you are *registered or *required to be registered

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

The asterisk denotes a defined term in the GST Act.

In your case, you intend to sell your residential property which has been your principle residence since post July 2000. The sale is for consideration and the sale is connected with Australia. Therefore, paragraphs 9-5(a) and (c) of the GST Act are satisfied.

However, we need to consider whether the sale of your residential property is made in the course of furtherance of an enterprise that you carry on and whether you are required to be registered for GST.

Section 9-20 of the GST Act defines what constitutes an enterprise as follows.

(1) An enterprise is an activity, or series of activities, done:

· in the form of a *business; or

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

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

…

Goods and Services Tax Determination GSTD2006/6 considers what is an enterprise for the purpose of the GST Act.

Paragraph 6 of GSTD 2006/6 provides that:

6. An enterprise is defined as an activity or series of activities done in a certain manner or by certain entities. The activities covered include those done in the form of a business or an adventure or concern in the nature of trade, leasing on a regular or continuous basis, activities done by charitable or religious institutions, superannuation funds, and activities done by the Commonwealth, a State, a Territory, or local government.

Paragraph 10 of GSTD 2006/6 defines the meaning of an activity or series of activities:

10. Essentially, this is any act or series of acts that an entity does. The meaning of the term 'activity or series of activities' for an entity can range from a single act or undertaking, to groups of related activities, to the entire operations of the entity.

Paragraphs 13 and 14 of GSTD 2006/6 define the meaning of the form of an adventure or concern in the nature of trade:

13. 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. However, the sale of the family home, a private car, or other private assets is not, without other factors being present, an adventure, or concern in the nature of trade.

14. As a matter of statutory interpretation the phrase 'in the form of an adventure or concern in the nature of trade' is wider than 'an adventure or concern in the nature of trade'. However, the underlying concept of an adventure or concern in the nature of trade does not logically lend itself, in any meaningful way, to being broadened. In a practical sense, an activity is either an adventure or concern in the nature of trade or it is not.

Goods and Services Tax Ruling GSTR 2003/3 defines what constitutes the sale of new residential premises. Paragraph 11 states:

11. The sale of a persons private residential premises will not be subject to GST, even if the premises are new residential premises, unless the sale is in the course or furtherance of that persons enterprise and the person is registered or required to be registered for GST.

The act of leasing of your property may be considered as an enterprise. However, you ceased to carry on that enterprise X years ago. Currently you do not carry on an enterprise on your property.

The sale of your residential home does not amount to an adventure or concern in the nature of trade as it is the mere realisation of a private asset. Hence, it is not considered to be made in the course of an enterprise.

Furthermore, you are not registered for GST or required to be registered for GST.

As the sale of your residential home does not satisfy all of the requirements of section 9-5 of the GST Act, you are not making a taxable supply. Consequently, the sale of this property is not subject to GST.