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Ruling

Subject: GST and sale of land

Questions

Will the partnership be required to be registered for the goods and services tax (GST) when they sell the land located in Australia (land)?

Will the sale of the land owned by the partnership be subject to GST under the A New Tax System (goods and Services Tax) Act 1999 (GST Act)?

Advice

No, based on the information received the partnership will not be required to be registered for GST when they sell the land.

No, based on the information received the sale of the land owned by the partnership will not be subject to GST.

Relevant facts

The partnership XYZ (you) has purchased some land located in Australia and did not pay any GST on the purchase.

After the purchase, you operated a farming activity on the land and registered for GST. You constructed a dam on the land, installed an irrigation system and a small shed for keeping the tools when you carried on this farming activity. There is no house on the property.

You ceased the farming activity on the land and cancelled your GST. From that date the land has not been used for any purpose.

You are now considering selling the land as it is, that is without carrying out any development on the land.

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 23-5

Reasons for decisions

Question 1

Under section 23-5 of the GST Act an entity is required to be registered for GST if:

(a) the entity is carrying on an enterprise; and

(b) the entity's GST turnover meets the registration turnover threshold which is currently $75,000 ($150,000 for non-profit organisation).

You will need to satisfy both paragraphs to be required to be registered for GST when you sell the land.

The definition of an 'enterprise' in subsection 9-20(1) of the GST Act includes (amongst other things) an activity or series or activities done in the form of an adventure or concern in the nature of trade.

The meaning of 'enterprise' is considered in Miscellaneous Taxation Ruling MT 2006/1: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number, and Goods and Services Tax Determination GSTD 2006/6: does MT2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the GST Act? The principles outlined in the ruling and determination, have been applied in your circumstances.

Paragraph 13 of GSTD 2006/6 explains that 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. However, the sale of the family home, a private car or other private assets is not, without other factors being present, an adventure or concern in the nature of trade.

Paragraphs 262 to 302 of MT 2006/1 specifically consider isolated transactions and sales of real property. Paragraph 263 of MT 2006/1 states that the issue to be decided is whether the activities are an enterprise, in that they are of a revenue nature, as opposed to the mere realisation of a capital asset.

In determining whether activities relating to isolated transactions are an enterprise or the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each case. No single factor will be determinative. Rather it will be a combination of factors that will lead to a conclusion as to the character of the activities.

Paragraphs 258 to 260 of MT 2006/1 provide that certain type of assets, such as rental properties, business plant and machinery, the family home, family cars and other assets are considered as investment assets. These assets are purchased with the intention of being held for a reasonable period of time, as income-producing assets or for the pleasure or enjoyment of the person. The mere disposal of these investment and private assets does not amount to trade. Assets can change their character from investment to trade, however these assets cannot be held at the same time for both purposes.

From the facts given, you are not carrying on any business activity on the land. In this instance, we consider that the sale of the land will be the mere disposal of an investment asset which does not amount to trade. Accordingly, you will not be selling the land in the course of an enterprise.

As paragraph (a) of section 23-5 of the GST Act will not be satisfied, you will not be required to be registered for GST when you sell the land you are currently holding.

Question 2

Section 9-40 of the GST Act provides that an entity must pay the GST payable on any taxable supply that they make.

As defined in section 9-5 of the GST Act, an entity makes a taxable supply if:

(a) the entity makes the supply for consideration; and

(b) the supply is made in the course or furtherance of an enterprise that the entity carries on; and

(c) the supply is connected with Australia; and

(d) the entity is registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that the supply is GST-free or input taxed.

You will need to satisfy all the above conditions for your supply to be subject to GST.

As discussed in question 1, you will not be carrying on an enterprise and required to be registered for GST when you sell the land. Your sale of the land will therefore not satisfy all the conditions in section 9-5 of the GST Act.

Accordingly your sale of the land will not be subject to GST.