Edited version of your private ruling

Authorisation Number: 1012428610404

Ruling

Subject: GST and sale of a property

Question

Is goods and services tax (GST) payable on your sale of the property?

Answer

No, on the facts provided, GST is not payable on your sale of the property.

Relevant facts and circumstances

You are not registered for GST. You purchased a property comprising vacant land in Australia before 1 July 2000. You purchased the property with the intention of building your own private residence there.

You have not received any income or other monetary benefits in connection with the property, and you have not used the property for any purpose. That is, you have not used the property for any business or other income-producing activities, or for any personal/private activities. In particular, you have not undertaken any subdivision or development activities on the property. The property has remained vacant land as it was purchased.

Expenses that have been incurred in relation to the property are council rates and maintenance costs including grass cutting expenses. You have not claimed any income tax deductions for expenses incurred in relation to the property. You are now selling the property.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 7-1

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

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

Reasons for decision

Section 7-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that GST is payable on taxable supplies.

Under section 9-5 of the GST Act, you make a taxable supply if:

· you make the supply for consideration

· the supply is made in the course of carrying on an enterprise

· the supply is connected with Australia, and

· you are registered or required to be registered for GST.

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

On the facts of this case, there are no provisions in the GST Act to make your sale of the property, GST-free or input taxed.

Your sale of the property is a supply made for consideration, being the purchase price under the sale contract. Further, the property comprises real property situated in Australia and as such, your sale is a supply connected with Australia.

You are not registered for GST. Therefore, in deciding whether your sale of the property is a taxable supply, we need to determine whether the sale is made in the course of carrying on an enterprise and if yes, whether at the time of sale, you are required to be registered for GST.

An enterprise is defined in section 9-20 of the GST Act to include an activity, or a series of activities, done:

· in the form of a business

· 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.

However, an enterprise does not include an activity, or a series of activities, done as a private recreational pursuit or hobby, or by an individual without a reasonable expectation of profit or gain.

Miscellaneous Taxation Ruling MT 2006/1 (which is also available on our website above) explains the meaning of carrying on an enterprise. In particular, paragraphs 262 to 302 of MT 2006/1 discuss and provide examples of isolated transactions involving sales of real property, in the context of activities done in the form of an adventure or concern in the nature of trade.

Paragraph 266 of MT 2006/1 provides that in determining whether activities related 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 particular case. Paragraph 265 of MT 2006/1 outlines a list of factors which may need to be considered among any other relevant factors as part of the process of reaching an overall conclusion.

In addition, paragraphs 258 to 261 of MT 2006/1 draw a distinction between trade (or revenue) assets and investment (or capital) assets and make the following points:

· 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 not to be purchased for trading purposes; and

· the mere disposal of investment assets does not amount to trade.

With respect to land bought with the intention of resale, paragraph 270 of MT 2006/1 states:

In isolated transactions, where land is sold that was purchased with the intention of resale at a profit (which would be ordinary income) the Commissioner considers these activities to be an enterprise. This would be so whether the land was sold as it was when it was purchased or whether it was subdivided before sale. An enterprise would be carried on in this situation because the activities are business activities or activities in the conduct of a profit making undertaking or scheme and therefore an adventure or concern in the nature of trade.

In this case, you purchased the property before 1 July 2000 with the intention of building your own private residence there. This has not eventuated, and you have not used the property for any personal/private activities. Nor have you used the property for any business or other income-producing activities.

Further, you have not undertaken any subdivision or development activities on the property, and it has remained vacant land as it was purchased. The only activities carried out on the property have been the mowing of grass to maintain the property.

You have not received any income or other monetary benefits in connection with the property, and you have not claimed any income tax deductions for expenses incurred in relation to the property, being council rates and maintenance costs.

On the facts provided in this case, we consider that your sale of the property is not made in the course of an enterprise that you carry on. There are two main reasons for this view.

First, you have not carried on any business or other income-producing activities on the property.

Second, you have held the property since before 1 July 2000 and you have not undertaken any subdivision or development activities on the property, nor claimed any income tax deductions for expenses incurred in relation to the property. As such, we consider that your sale of the property does not amount to an enterprise in the form of an adventure or concern in the nature of trade, but is the mere realisation of a capital asset. This is despite the fact that you have not used the property for private residential purposes as originally intended.

As your sale of the property is not made in the course of carrying on an enterprise, the sale does not meet all of the requirements for a taxable supply under section 9-5 of the GST Act. Therefore, GST is not payable on your sale of the property.