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Ruling

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

Question

Is GST payable on your sale of the property?

Answer

No.

Relevant facts and circumstances

You are registered for GST.

You are a builder.

You built your own residence at a location in Australia (the property) a number of years ago.

You did not claim input tax credits for construction costs.

You stated that you did not acquire the property for the purpose of re-selling it at a profit.

You stated that you did not build the residence for the purpose of selling the property at a profit.

You had intended to live in the residence indefinitely until issues with neighbours started to emerge. After reaching desperation point you decided to sell the property.

You sold the property.

You did not use the property for enterprise purposes. You used the property as your private residence only.

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 9-40

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

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-20(1)(a)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-20(1)(b)

Reasons for decision

Summary

GST is not payable on your sale of the property as the sale was the mere realisation of a private capital asset.

Detailed reasoning

GST is payable by you where you make a taxable supply.

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:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that

you *carry on; and

(c) the supply is *connected with Australia; and

(d) 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)

Subsection 9-20(1) of the GST Act defines enterprise to include:

(a) an activity or series of activities done in the form of a business

(b) an adventure or concern in the nature of trade

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

Goods and Services Tax Determination GSTD 2006/6 provides that MT 2006/1 can be relied on for GST purposes.

Paragraphs 262 and 263 of MT 2006/1 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 and paragraph 13 of GSTD 2006/6 state:

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.

Where a person builds a house and uses the house as their private residence and they later sell the property, the sale will not be a supply made in the course or furtherance of an enterprise carried on by the person unless:

· the person built the residence as part of an activity of building and selling homes for a profit, or

· the person uses the residence for carrying on an enterprise.

Whether or not the construction and subsequent sale of a house by an owner occupier will amount to an enterprise will be determined by the facts of each case. For example, if a property owner adopts a pattern whereby he or she constructs and lives in a number of homes over a relatively short period of time, then it could be considered that he or she is undertaking an enterprise of house construction and sale and that the purpose of holding the dwellings is not domestic use.

A person who carries on an enterprise of building and selling houses may sell a house that they have built and used as a private residence. The fact that the person had used the premises as a private residence before the sale does not necessarily mean that the sale is not in the course or furtherance of an enterprise carried on by the person. It will be a matter of fact and degree in each case. For example, if the evidence indicates that the person had intended to build the house and sell it for a profit, but lived in it temporarily before selling it, the sale would still be considered to be in the course or furtherance of an enterprise carried on by the person.

You built the residence and used the residence as your private residence. You later sold the property.

You stated that you did not build the residence for the purpose of making a profit.

You did not claim input tax credits for construction costs, which is consistent with building the residence for private purposes, rather than to sell at a profit.

You used the property as your private residence for an extensive period of time after you built the residence, rather than a brief period of time. Therefore, your construction of the residence is not part of a pattern whereby you have constructed and lived in a number of homes over a relatively short period of time.

You intended to live in the property indefinitely.

You sold the property due to problems you were having with neighbours.

Hence, we have concluded that you did not build the residence as part of an activity of building and selling homes for a profit.

Also, you did not use the property for carrying on an enterprise. You used the property solely as your private residence.

Therefore, you did not supply the property in the course or furtherance of an enterprise that you carried on when you sold the property. Your sale of the property was the mere realisation of a private capital asset - your private residence. There are no other factors that would make the activity in question an adventure or concern in the nature of trade or part of any other type of enterprise.

Hence, the requirement of paragraph 9-5(b) of the GST Act is not satisfied.

As not all of the requirements of section 9-5 of the GST Act are satisfied, you did not make a taxable supply of the property when you sold it. Therefore, GST is not payable on your sale of the property.