Edited version of your private ruling

Authorisation Number: 1012520041492

Ruling

Subject: GST and sale of real property

Question:

Is GST payable on the sale of the vacant land (the Property)?

Answer: No.

Relevant facts and circumstances

X (Trustee) and Y were appointed as concurrent trustees of the bankrupt estate of A (Bankrupts).

The Bankrupts were the registered proprietors of the Property and a residential property.

The Trustee has taken the necessary steps to transfer title of the above named properties into its name.

As part of the administration of the bankrupt estate, the Trustee has decided to sell the Property. A contract for the sale of land was prepared and appointed a selling agent.

Under the Council planning instrument, the Property is zoned 'General Residential' with the objective of providing for the housing needs of the community.

The Bankrupts acquired the Property in or about Month 200X. The Bankrupts' intention with respect to the Property at the time of its acquisition is unknown.

The Trustee is not aware, through its investigation of the Bankrupts' affairs, that the Bankrupts have taken any steps to develop or subdivide and sell the Property.

The Bankrupts are not registered for GST and the Trustee is not aware of any business carried on by the Bankrupts. One A has listed themself as a professional and one A has listed themself as a government employee.

The Trustee plans to sell the Property without any development or subdivision.

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.

A New Tax System (Goods and Services Tax) Act 1999 section 58-5.

A New Tax System (Goods and Services Tax) Act 1999 section 58-10.

Reasons for decision

Summary

GST is not payable on the sale of the Property.

Detailed reasoning

Division 58 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) sets out how to ascribe activities of a representative of an incapacitated entity between the representative and the incapacitated entity for GST purposes.

In particular, supplies, acquisitions and importations, and associated acts and omissions, by the representative are, in most cases, treated as having been by the incapacitated entity. This ensures that a transaction by the representative has the same consequences under the GST law as if the incapacitated entity had no representative.

Under section 58-5 of the GST Act, any supply by a representative, in its capacity as representative, is taken, for GST purposes, to be a supply by the incapacitated entity and not the representative.

Under section 58-10 of the GST Act, a representative of an incapacitated entity is liable to pay any GST that the incapacitated entity would be liable to pay on a taxable supply to the extent that the making of the supply to which the GST relates is within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs.

A 'representative' is defined in section 195-1 of the GST Act to include a trustee in bankruptcy and it further defines an 'incapacitated entity' to include an individual who is a bankrupt.

In this case, the Trustee is a representative of an incapacitated entity, the Bankrupts. Hence, Division 58 of the GST Act is applicable.

The sale of the Property falls within the scope of the Trustee's responsibility or authority for managing the Bankrupts' affairs. Therefore, the Trustee would be liable to pay any GST that the Bankrupts would, but for section 58-10 of the GST Act, be liable to pay on this supply if it was a taxable supply.

Section 9-5 of the GST Act sets out the requirements of a taxable supply and it 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 for GST.

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.)

Based on the information provided, the sale of the Property is for consideration and is connected with Australia as the property is located in Australia. Therefore, the sale satisfies paragraphs 9-5(a) and 9-5(c) of the GST Act.

It remains to be determined whether the sale of the Property is made in the course or furtherance of an enterprise that the Bankrupts carry on under paragraph 9-5(b) of the GST Act, whether the Bankrupts are required to be registered for GST under paragraph 9-5(d) of the GST Act, and whether the sale is GST-free or input taxed.

Whether the sale of the Property is in the course of an enterprise that the Bankrupts carry on

Section 9-20 of the GST Act provides that enterprise includes, among 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.

Miscellaneous Taxation Ruling MT 2006/1 considers the meaning of the term 'enterprise' for the purposes of entitlement to an Australian business number. Goods and Services Tax Determination GSTD 2006/6 provides that the discussion in MT 2006/1 equally applies to the term 'enterprise' as used in the GST Act and can be relied on for GST purposes.

MT 2006/1 provides that ordinarily, 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 commercial activity that does not amount to a business but which has the characteristics of a business deal. However, the mere realisation of investment or private assets does not amount to trade. Additionally, the fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature.

In this case, the Bankrupts have held the Property for a number of years. The information available does not indicate that the Bankrupts have taken any steps to develop or subdivide and sell the Property.

Based on this information, it can be concluded that the sale of the Property is the mere realization of a private asset. Hence, the sale is neither an activity in the form of a business nor in the form of an adventure or concern in the nature of trade. Furthermore, the Bankrupts are not carrying on any other enterprise.

Consequently, the sale is not made in the course or furtherance of an enterprise that the Bankrupts carry on and the requirement of paragraph 9-5(b) of the GST Act is not satisfied.

Whether the Bankrupts are required to be registered for GST

On the information provided, the Bankrupts are not registered for GST.

Section 23-5 of the GST Act sets out who is required to be registered and it states:

You are required to be registered under this Act if:

a) you are *carrying on an *enterprise; and

b) your *GST turnover meets the *registration turnover threshold.

As the Bankrupts are not carrying on an enterprise, they are not required to be registered for GST. Hence, the requirement of paragraph 9-5(b) of the GST Act is not satisfied.

As all the requirements of section 9-5 of the GST Act are not met, the supply is not a taxable supply. There is no need to consider further whether the supply is GST-free or input taxed.

Therefore, the Trustee is not liable to pay any GST on the sale of the Property because had the Bankrupts made the supply, GST would not have been payable.

Additional information

The publication Representative of incapacitated entities discusses joint and several liability in section 4 as follows:

Where two or more representatives are appointed in the same capacity, the representatives are jointly liable for GST and jointly entitled to input tax credits for any taxable supplies and creditable acquisitions that are within the scope of their responsibility or authority for managing the incapacitated entity's affairs. Jointly appointed representatives acting in the same capacity are jointly and severally liable to pay GST under subsection 444-70(1) of Schedule 1 to the TAA.

All publications referred to above are available at the ATO website www.ato.gov.au