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Ruling

Subject: Sale of real property

Question

Is the sale of your residential property a taxable supply?

Answer

No

Relevant facts and circumstances

You are not registered for GST. In YYYY you acquired a property in Australia. You conducted a business on the property through a partnership with your spouse.

In YYYY you undertook a subdivision of the property leaving you with a ¼ of the property, Lot X. The remaining area of the property was gifted in X separate lots to your children. You continued to operate the enterprise on the newly created lots until YYYY.

This business is no longer conducted by you and the house located on lot X is used as your principal residence.

One of your children, who was gifted an adjacent Lot from the subdivision, carried on the business as a sole trader from YYYY and then transferred the business in YYYY to a trust. The trust takes products from your property for no consideration. You have no interests in the trust and derive no income from the production. You are not involved in any of the activities of the business conducted on your property.

Although a GST registered partnership exists between you and your spouse, the associated enterprise is not conducted on or connected with the Lot X property.

The land was recently rezoned. This rezoning was carried out by the local shire and applied to a wide area in the locality. You were a passive participant and did not actively pursue the rezoning.

You have entered into a contract with a developer to sell Lot X as a single lot for $X.

Relevant legislative provisions

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

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

Reasons for decision

For there to be a taxable supply of the property, the supply must meet all of the criteria set out in section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Further, the supply must not be GST free or input taxed.

In your case:

· you will be making the supply of the property for consideration,

· the property is located in Australia

· you are not registered for GST

· on the facts provided,

· your supply of the property is not GST-free, and

· the portion of the property that the house is located on will be an input taxed supply of residential property.

Therefore, the issues to be considered are whether the supply of the portion of the property that is not input taxed will be made in the course or furtherance of any enterprise that you are carrying on and, if so, whether you are required to be registered for GST.

As defined in subsection 9-20(1) of the GST Act an enterprise includes an activity, or a 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; or

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 (MT 2006/1) provides guidance on the meaning of "enterprise." Paragraph 178 of MT 2006/1 refers to Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? (TR 97/11), which lists the main indicators of carrying on a business. Indicators of a business include having a significant commercial activity, a purpose and intention to engage in activity and an intention to make profit from the activity. Some relevant facts in determining the purpose of the sale of land are the length of time held and the use of property as a principal residence.

Paragraph 154 of MT 2006/1 explains that it is necessary to identify one activity or a series of activities that amount to an enterprise. Paragraph 163 outlines that a sale of an asset may not of itself amount to an enterprise but account should also be taken of the other activities leading up to the sale.

In your case, you conducted a primary production enterprise on the property from YYYY. In YYYY you subdivided the property into X lots to enable your X family members to take a share of the property. You continued to operate the enterprise over the X lots until YYYY. Since YYYY you have not operated any business on the land. The business activity on your land has been carried out by one of your children as a sole trader between YYYY and YYYY and then through a trust. You have not received any consideration for allowing your child to use your property for these activities. Therefore you have not undertaken any activity amounting to an enterprise on the property since YYYY.

It is clear that the property was initially acquired and held for business purposes until YYYY. However, your involvement ceased at this point and the property was used in part by you as your principal residence and the balance by your child in the enterprise conducted through a trust. Although profit may be realised from the sale, you did not acquire and hold the property for the purpose of resale at a profit.

Although you subdivided your property in YYYY, it was for family reasons. The rezoning of your land was a decision taken by your council. You were a passive participant in this process. You are selling the property as a single lot.

These facts lead to the conclusion that the property was not acquired with the intent of realizing the property for a profit. Consequently, the sale is not in the form of an adventure in the nature of trade. It follows that the supply is a mere realisation of a capital asset and is not made in the course or furtherance of an enterprise that you carry on.

As your supply of the portion of the property that is not input taxed will not be made in the course or furtherance of any enterprise that you are carrying on, it is not necessary to consider whether you are required to be registered.

As your supply of the property will not satisfy all of the conditions detailed in section 9-5 of the GST Act, it will not be a taxable supply.