Edited version of your private ruling

Authorisation Number: 1012601201896

Ruling

Subject: GST and sale of property

Questions

1. Does the goods and services tax (GST) apply to the sale of the vacant land located at XYZ(1) Avenue in Australia by the partnership?

2. Does GST apply to the sale of the residential property located at XYZ(2) Avenue in Australia by the partnership?

3. Does GST apply to the sale of the vacant land located at XYZ(1) Avenue together with the residential property located at XYZ(2) Avenue to one purchaser by the Partnership?

Advice

1. No, GST will not apply to the sale of the vacant land located at XYZ(1) Avenue in Australia by the partnership because based on the information received the partnership will not be carrying on an enterprise under paragraph 9-5(b) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when the vacant land is sold.

2. No, GST will not apply to the sale of the residential property located at XYZ(2) Avenue in Australia by the partnership because based on the information received the partnership will not be carrying on an enterprise under paragraph 9-5(b) of GST Act when the residential property is sold.

3. No, GST will not apply to the sale of the vacant land located at XYZ(1) Avenue together with the residential property located at XYZ(2) Avenue to one purchaser by the Partnership because based on the information received the partnership will not be carrying on an enterprise under paragraph 9-5(b) GST Act when the vacant land and residential property are sold together to one purchaser.

Facts

The partnership bought a house located at ABC road several years ago and uses the house as their main residence. The house is on a large battle-axe block and the driveway entry to the house has a wide frontage from ABC road.

As traffic on ABC road increased over the years, you purchased some land to get a driveway entry from XYZ Avenue which is a quiet side street. You added the new access to your house from XYZ Avenue to be part of your house title and your address then became XYZ(2) Avenue.

The original access from ABC road to your present battle-axe land and house was subdivided at the same time you got your new access from XYZ Avenue and it became a separate title called XYZ(1) Avenue. This XYZ(1) land has been continuously used and maintained as part of your principal residence since then.

You use the ABC Rd and the XYZ Avenue as entry to your house.

You advised that the Land Tax Office has always given you an exemption from land tax for XYZ(1) Avenue as it is considered to be part of your house located at XYZ(2) Avenue.

You wish to downside and have advertised the house and vacant land for sale. Your solicitor has prepared separate draft sale contracts for XYZ(1) Avenue and XYZ(2) Avenue as it is possible that there may be one purchaser for both titles or two purchasers one for the house and one for the land.

You currently are registered for GST because of the rental income you received from the small strata office located on another property which you own for many years. You are registered for GST and do not carry on any other business activity from your house and do not claim any part of your house as an income tax deduction.

Relevant legislative provisions

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

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

Reasons for decisions

Questions 1 to 3

GST is payable on a taxable supply. You make a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) 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.

All of the above requirements must be satisfied for a supply to be a taxable supply under section 9-5 of the GST Act

You currently carry on a leasing enterprise and are registered for GST. However the properties located at XYZ(1) and XYZ(2) Avenue are not held as capital assets for your leasing enterprise. You hold XYZ(1) and XYZ(2) Avenue as private assets since they are being used as your main residence. We therefore need to determine whether an enterprise will be carried on for the sale of these private assets.

Are you carrying on an enterprise for the sale of XYZ(1) and XYZ(2) Avenue?

Section 9-20 of the GST Act defines '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.

Paragraph 1 of Goods and Services Tax Determination GSTD 2006/6 (available at www.ato.gov.au) provides that the guidelines in MT 2006/1 are considered to apply equally to the term 'enterprise' as used in the GST Act and can be relied upon for GST purposes.

Miscellaneous Tax Ruling MT 2006/1 (available at www.ato.gov.au) provides guidance on the meaning of 'enterprise' for the purposes of entitlement to an Australian business number.

Whether or not an activity, or series of activities, constitutes an enterprise is a question of fact and degree having regard to all of the circumstances of the case.

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, it goes on to say that 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 244 of MT 2006/1 provides further guidance on adventures and concerns in the nature of trade. It states:

244. 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.

From the information received, the properties at XYZ(1) Avenue and XYZ(2) Avenue are used as your family home and therefore are private assets. In this instance, you will not be considered to carry on an activity in the form of an adventure or concern in the nature of trade when you sell these private assets separately or together. Accordingly, you will not be carrying on an enterprise when selling the properties at XYZ(1) Avenue and XYZ(2) Avenue either separately or jointly.

Summary

Paragraph 9-5(b) of the GST Act will not be satisfied when you will sell the properties located at XYZ(1) Avenue and XYZ(2) Avenue either separately or jointly as you will not be carrying on an enterprise.

Since all the requirements in section 9-5 of the GST Act will not be satisfied, the sale of XYZ(1) Avenue and XYZ(2) Avenue either separately or jointly will not be subject to GST.