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Ruling

Subject: Goods and services tax (GST) and sale of property.

Question

Is GST payable on individual 1 and individual 2's sale of the property?

Answer

No.

Relevant facts and circumstances

Individual 1 is registered for GST as an individual.

Individual 1 acquired a property located in Australia (the property) from their parent many years ago.

The property was created from a subdivision of a larger property by individual 1's parent many years ago. The subdivision resulted in the creation of a number of lots. Some of the post-subdivision lots were gifted to family members and one was retained by individual 1's parent.

Individual 1's parent purchased the pre-subdivision property many years ago. This property was used by individual 1's parent and individual 1's parent's family as their residence. Individual 1's parent carried on a farming business on the pre-subdivision property.

Individual 1 wished to reside on the area that the property comprises with their family and hence the subdivision was completed and the property was gifted by individual 1's parent to individual 1.

Individual 1 transferred part of their interest in the property to their spouse, individual 2.

Individual 2 is not registered for GST and does not carry on any enterprise.

Individual 1 and individual 2 own the property as joint tenants.

Individual 1 and individual 2 constructed a residence on the property many years ago and they continue to reside on the property. The residence was used for residential accommodation. The residence has not been substantially renovated.

The property is used primarily by individual 1 and individual 2 for personal purposes.

Individual 1 operates a small part time professional services business from a small one room detached office on the property. Individual 1 is also a full time employee.

Information about the office:

The office was built for the purpose of storing household items and to provide

a study for individual 1 and individual 2's children.

Individual 1 and individual 2 children still use the office as their study.

There are no fixtures in the office.

There is no business signage on the office.

There is no car parking facility next to the office.

There is not a separate driveway to the office.

The office is accessed via a footpath.

Individual 1 rarely meets clients in the office. Individual 1 mainly meets clients at the clients' premises.

Individual 1 estimates that there would be a very large number of trees on the property.

Individual 1 has a number of siblings who reside on adjacent lots that were created from the subdivision referred to above.

One of the siblings conducts a farming business that they took over from their parent in a certain year. That sibling operates the farming business through a trust.

The trust takes the produce that grows on the property from the property for free.

Individual 1 and individual 2 will sell the property to a property developer that will use the property in a property development project.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

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

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

Reasons for decision

Summary

GST will not be payable on individual 1 and individual 2's sale of the property because the sale will not be a supply made in the course or furtherance of an enterprise that they carry on.

Detailed reasoning

GST is payable by an entity on its taxable supplies.

You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states:

You make a taxable supply if:

· you make the supply for *consideration; and

· the supply is made in the course or 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.

(*Denotes a term defined in section 195-1 of the GST Act)

Miscellaneous Taxation Ruling MT 2006/1 provides guidance on the meaning of enterprise for ABN purposes.

Paragraph 1 of Goods and Services Tax Determination GSTD 2006/6 provides that the principles in MT 2006/1 apply equally to the terms 'entity' and 'enterprise' and can be relied on for GST purposes.

Paragraphs 262 and 263 of MT 2006/1 provide guidance in determining whether a one-off or isolated real property transaction is an enterprise. They state:

262. The question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions.

263. The issue to be decided is whether the activities are an enterprise in that they are of a revenue nature as they are considered to be activities of carrying on a business or an adventure or concern in the nature of trade (profit making undertaking or scheme) as opposed to the mere realisation of a capital asset. (In an income tax context a number of public rulings have issued outlining relevant factors and principles from judicial decisions. See, for example, TR 92/3, TD 92/124, TD 92/125, TD 92/126, TD 92/127 and TD 92/128.)

Paragraph 244 of MT 2006/1 discusses the sale of a family home. 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.

A person's sale of their private home will not be a supply made in the course or furtherance of an enterprise they carry on even if a room in that home is used as an office of the vendor provided that the property is not used in a property trading, property development or property renovating enterprise carried on by the vendor. However, where a sale of a property comprises two distinct parts, one part being the private home of the vendor and the other part not forming part of the private home of the vendor, the sale of the property may be a supply made in the course or furtherance of an enterprise carried on by the vendor on the part of the property that is not used as the private home of the vendor.

Individual 1 operates their professional services enterprise from a one room office on the property. However, this office forms part of individual 1 and individual 2's private home even though it is not attached to the main residential building. Therefore, individual 1 and individual 2's sale of the property will not be a supply made in the course or furtherance of the professional services enterprise carried on by individual 1.

Individual 1 and individual 2 have not used the property in a property trading, property development or property renovating enterprise.

We do not consider that individual 1 and individual 2 are carrying on a farming business as they are not selling the produce that grows on the property. Therefore, their sale of the property will not be a supply they make in the course or furtherance of a farming enterprise that they carry on.

Individual 1 and individual 2's sale of the property will be the mere realisation of a capital asset and will not be a supply made in the course or furtherance of an enterprise that either or both of them carry on. Hence, the requirement of paragraph 9-5(b) of the GST Act will not be satisfied. As not all of the requirements of section 9-5 of the GST Act will be satisfied, they will not make a taxable supply of the property when they sell it. Hence, GST will not be payable on their sale of the property.