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Ruling

Subject: PAYG payment summary - withholding where no ABN quoted

Question

Can you claim a credit from the Commissioner for an amount purportedly withheld under the PAYG withholding provisions - withholding where ABN not quoted?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

You are a salary and wage earner. You do not conduct any businesses and therefore do not have an ABN and are not entitled to one.

You sold your interest in a property. It was inherited, from your relative, who had purchased the property and lived in it as their main residence. The property was used as a main residence by one of the co-owners for a period and then rented out until it was sold.

You accepted an offer for the property.

At the time of settlement the buyer sought to pay the balance of the amount owing in two instalments of $XX,XXX, the first then and the second payment to follow in several days. The second payment was not paid and you could not collect the amount. You took legal action to try to collect the outstanding $XX,XXX.

You received correspondence from the buyer's accountant requesting a Tax Invoice for the amount of the two instalments. If it was not received a recipient invoice would be produced and issued to you.

You believed that the transaction was private in nature involving the sale of a private residence, and as you were not in business or furtherance of an enterprise and did not have an ABN you could not provide a tax invoice. Through your lawyers you notified the buyer and their accountant that no tax invoice would be issued as you did not consider that any purported tax invoice had any legal effect.

You received a scanned copy of the Payee copy of the "PAYG Payment Summary - withholding where no ABN quoted" form. This form indicates that the buyer remitted $XX,XXX to the ATO.

Relevant legislative provisions

Taxation Administration Act 1953 Schedule 1, Section 12-190

Taxation Administration Act 1953 Schedule 1, Section 18-65

Reasons for decision

Summary

You cannot claim a credit from the Commissioner for an amount purportedly withheld under the PAYG withholding provisions - withholding where ABN not quoted. The supply (sale of the property) was not made to the buyer in the course or furtherance of an enterprise in Australia. The buyer should not have withheld any amount as there was no requirement for the seller to quote an ABN. There are provisions within the Taxation Administration Act 1953 (TAA 1953) to allow for the payer to refund amounts withheld in error, provided they are notified by the payee before the end of the financial year. We consider that you had notified the payer before the end of the financial year, that they were in error in withholding an amount and they should not have withheld or should have refunded the amount to you.

Detailed reasoning

Requirement to withhold where no ABN quoted

A payer who makes a payment to an entity for a supply that the entity has made in the course of an enterprise carried on in Australia must withhold an amount under PAYG withholding (Schedule 1 Section 12-190 of the TAA 1953).

Carrying on an enterprise

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.

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 sale of the property 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 property was originally inherited from your relative, who used it as their residence. It was then used by a co-owner for their residence, before being rented out and then sold.

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.

In your case you had agreed to sell the property, a private residence. You are not in the business of property development or buying and selling property at a profit. You could not be seen as carrying on an enterprise. There is no activity or series of activities done in the form of a business. The mere disposal of an investment asset does not amount to an activity in the form of trade.

The supply of the property is not in the course of an enterprise carried on in Australia. There is no requirement to withhold any amount under PAYG withholding for not quoting an ABN.

You would not be able to obtain an ABN in regards to the activity of selling the property and would not be able to issue a tax invoice.

There are provisions in Schedule 1, section 18-65 of the TAA 1953 that provides for the right to receive a refund from the payer.

The payer must refund an amount to the recipient of a withholding payment if the payer, withheld the amount from a payment to the recipient (whether the amount has been paid to the Commissioner or not) and the amount was withheld or paid in error.

The payer must refund a withheld amount if it becomes aware of the error or the recipient applies to the payer for the refund. In both cases, this must occur before the end of the financial year in which the amount was withheld or paid. The amount that must be refunded is a debt recoverable by the recipient from the payer.

If the payer refunds an amount, it may either:

· offset that amount against another payment it is required to make to the Commissioner, or

· recover from the Commissioner so much of the amount that is withheld and paid to the Commissioner, and which the payer has not recorded as being offset.

It is considered that you have notified the buyer and their accountant before the end of the financial year that there was no requirement for you to provide a tax invoice and therefore an ABN and that their purported tax invoice would not have any legal effect. You have also demanded payment of the monies. They have withheld the amount in error. It is considered that you have met the requirements of Schedule 1, section 18-65 and the payer should have refunded the amount to you at this time.