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Ruling

Subject: Goods and Services Tax (GST) in reference to the sale of residential property.

Question

Does a property used as a place of residency though zoned 'industrial' incur GST on disposal?

Answer

No. The sale of your residential property will not incur GST on disposal. The sale is not in the course or furtherance of an enterprise being carried on therefore you are not required to report GST on the disposal.

The 'place of residence' and 'council zoning' are some of the factors used to determine if a property can be defined as a 'residential premises' to determine if the sale of a property is subject to GST. In your case these factors do not effect this decision.

Relevant facts and circumstances

xx (you) were previously trading as xx under ABN xx

On xx, your Goods and Services Tax (GST) was cancelled

On xx, you acquired a property located at xx x xx (property)

The property is zoned industrial but has been used as the family premises since its acquisition and used as a principle place of residence since xx.

You provided a copy of the contract of sale (contract) which is currently undated and unsigned and without a price.

You provided a copy of the Planning Certificate issued by the xx on xx, Item 2 of the Planning Certificate states the land is zoned "Industrial".

The property includes a complete residence containing four bedrooms, two bathrooms, kitchen, dinning room, lounge room and basement workshop.

The size of the block is xxx square meters and the size of the workshop area is xxx square meters.

You have been operating a business from the workshop located in the basement of the property it is not under a separate title.

You have not paid rent paid for the use of the workshop to operate the business.

The property has not been used as farmland.

On xx your accountant provided additional information over the phone, stating:

As of xx, there was no tax deductions claimed for the property.

You hold a current ABN as a sole trader because you have on going legal obligations under a contract which was established in xx and it overlap's the xx financial year.

The property will be sold for consideration, you have an offer from a prospective purchaser and the price to be struck will be of monitory value.

You are currently retired.

You do not conduct a property development or other such enterprise.

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

A New Tax System (Goods and Services Tax) Act 1999 section 195-5

Reasons for decision

You can only incur GST on the disposal of the property if the sale meets the definition of a taxable supply.

To be a taxable supply all parts of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) must be met.

Section 9-5 of the GST Act 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.

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

From the facts provided, the calculation of the property price is subject to an offer by a purchaser and the calculation of potential GST is the subject of this private binding ruling. The price to be struck will be provided in the form of money. Furthermore, your property is located in xx which is a state of Australia.

Therefore you meet, or will meet, the conditions of subsection 9-5(a) and 9-5(c) of the GST Act.

The next issue to consider is whether you met subsection 9-5(b) of the GST Act. Specifically whether, the supply of the property will be made in the 'course or furtherance of an enterprise' that you carry on.

Enterprise

Section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) defines the 'enterprise' to include, amongst other things, an activity, or series of activities done in the form of a business or in the form of an adventure or concern in the nature of trade.

The Tax Office view of what is an enterprise is contained in 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)

Paragraph 1 of Goods and Services Tax Determination GSTD 2006/6 (GSTD 2006/6) provides that the guidelines in MT 2006/1 are to apply to the meaning of the terms 'entity' and 'enterprise' as used in the GST Act and can be relied upon for GST purposes.

In accordance with paragraph159 of MT 2006/1, whether or not an activity or series of activities amounts to an enterprise is a question of fact and degree, having regard to all the circumstances of the case.

Further, 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 on a regular or continuous basis. However, an adventure or concern in the nature of trade may be an isolated or one-off transaction that does not amount to a business.

Paragraph 237 of MT 2006/1 explains that an adventure or concern in the nature of trade includes a commercial activity that does not amount to a business. These are the transactions of a commercial nature which are entered into for profit making, but are not part of the activities of an ongoing business. The term 'profit making undertaking' concerns transactions of a commercial nature which are entered into for profit making but are not part of the activities of an on-going business.

Paragraphs 262 to 302 of MT 2006/1 explain the Tax Office's view on isolated transactions and sales of real property.

Paragraph 262 states:

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

Paragraph 265 of MT 2006/1 provides a list of factors that provide assistance in determining whether an activity amounts to an adventure or concern in the nature of trade.

Those factors are:

· there is a change of purpose for which the land is held

· additional land is acquired to be added to the original parcel of land

· the parcel of land is brought into account as a business asset

· there is a coherent plan for the subdivision of the land

· there is a business organisation - for example a manager, office and letterhead

· borrowed funds financed the acquisition or subdivision

· interest on money borrowed to defray subdivisional costs was claimed as a business expense

· there is a level of development of the land beyond that necessary to secure council approval for the subdivision, and

· buildings have been erected on the land.

If several of these factors are present it may be an indication that a business or an adventure or concern in the nature of trade is being carried on. Paragraph 266 of MT 2006/1 explains that it is necessary to examine the facts and circumstances of each particular case. In addition to the aforementioned factors there may also be other relevant factors that need to be considered as part of a process of reaching an overall conclusion.

Moreover, no single factor will be determinative; it will be a combination of factors that will lead to a conclusion as to the character of the activities. Whilst each case is affected by its own particular facts, the determination of whether an enterprise exists for GST purposes is generally the result of a process of weighing all the relevant indicators.

In applying these factors to the present case, we considered the following:

Was there a change of purpose for which the land is held?

Yes, there was a change in purpose of the land, from xx the property was purchased and used for private purposes. Between xx a GST registered xx business operated from the property. After xx, the property was again used for private purposes.

Was additional land acquired or added to the original parcel of land?

No. There was no additional land acquired

Was the parcel of land brought into account as a business asset?

No, there has been no deduction for holding costs relating to the property.

Was there is a coherent plan for the subdivision of the land?

No.

Was there is a business organisation - for example a manager, office and letterhead?

There has been no evidence to suggest the property was used for administration purposes.

Were borrowed funds used to finance the acquisition or subdivision?

Not taken into account.

Was interest on money borrowed to defray subdivisional costs claimed as a business expense?

No, there were no deductions or holding costs relating to the property.

Is there is a level of development of the land beyond that necessary to secure council approval for the subdivision?

No. It may be the intention of the purchaser to develop the property however their intentions are not relevant to this decision.

Were buildings erected on the land?

No additional buildings were erected on the land. .

Furthermore, the property has been used for private purposes as a residence for several years. There have been no changes in the purpose of the property land, the majority of the land has always been used predominantly as a residence and your xx business ceased to be registered for GST in xx. You are not conducting a property development or similar enterprise and you are retiring, therefore, the sale of the property is an isolated transaction and one that does not amount to a current business.

Having regard to all your circumstances we consider the property sale is the mere realisation of a capital asset. The use of the workshop between xx and xx does not amount to a business.

Despite the fact that you used part of the property for your business during x and xx, it is no longer considered to be part of an on-going business and is not being sold in the furtherance of your enterprise.

Therefore, the sale of the property will not be a taxable supply.