Edited version of your written advice

Authorisation Number: 1012637309370

Ruling

Subject: carrying on an enterprise and GST registration

Question 1

Is the proposed sale of the Sale Land by Taxpayer A and Taxpayer B (you) to a Developer a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Answer

No.

Question 2

Are you required to be registered for GST?

Answer

No.

Relevant facts and circumstances

• You are not registered for GST and have never been registered for GST (neither as individuals nor as a partnership).

• You are joint tenants of your Main Residence and the adjoining land (Sale Land), collectively referred to as the Properties.

• You purchased the Properties over 50 years ago and have held the Main Residence and Sale Land since that time. It was always your intention to use the Properties as your family home and garden.

• You have remained on the Properties since the date of purchase.

• The Properties have only been used for private and domestic purposes.

• The cost of the Properties was paid from your joint funds.

• There has been no substantial renovations/alterations made to the Properties since your acquisition. You have not developed the Properties.

• The sale Land is vacant land. You have not done any subdivision on the Sale Land.

• You entered into a call option with the Developer to grant a right to the Developer to exercise an option to acquire the Sale Land.

• You have no connection to the Developer and are not involved in the development of the Sale Land. You will not share in any profit derived by the Developer in respect of the development.

• You also advise that no business activities have been or are being conducted on the Sale Land. No subdivision of the Sale Land has been undertaken by you

• You have also provided various documents and contracts which you have included as part of your GST private ruling request:

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 decision

Summary

The sale of the property (Sale Land) is not considered to be conducting an enterprise. As you are not registered or required to be registered for GST, the subsequent sale of the Sale Land will not be subject to GST.

Detailed reasoning

The sale of property will be a taxable supply if the supply satisfies all the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). 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.

(*denotes a term defined in the GST Act)

For the sale of the Sale Land to be a taxable supply, all of the requirements listed in section 9-5 of the GST Act must be satisfied. We therefore need to determine whether the sale of the Sale Land will be made in the course or furtherance of an enterprise that you carry on under paragraph 9-5(b) of the GST Act and whether you are required to be registered for GST under paragraph 9-5(d) of the GST Act.

Enterprise

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.

Miscellaneous Taxation Ruling MT 2006/1 provides guidance on the meaning of 'enterprise' for the purposes of entitlement to an Australian business number.

Paragraph 1 of Goods and Services Tax Determination GSTD 2006/6 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.

In accordance with paragraph 159 of MT 2006/1, 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.

Paragraphs 262 and 263 of MT 2006/1 provide:

Isolated transactions and sales of real property

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

263. The issue to be decided is whether the activities are an enterprise in that they are of a revenue nature as they are considered to be activities of carrying on a business or an adventure or concern in the nature of trade (profit making undertaking or scheme) as opposed to the mere realisation of a capital asset…

We consider your activities in the sale of the Sale Land is a 'one-off' or isolated real property transaction. 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.

Paragraphs 264 to 269 of MT 2006/1 outline factors that indicate whether the activities undertaken are an 'adventure or concern in the nature of trade' and state:

264. The cases of Statham & Anor v. Federal Commissioner of Taxation (Statham) and Casimaty v. FC of T (Casimaty) provide some guidance on when activities to subdivide land amount to a business or a profit-making undertaking or scheme. In these cases, farm land was subdivided and sold. Minimal development work was undertaken to meet council requirements and to improve the presentation of certain allotments. On the particular facts of these cases the courts held that the sales were a mere realisation of a capital asset.

265. From the Statham and Casimaty cases a list of factors can be ascertained that provide assistance in determining whether activities are a business or an adventure or concern in the nature of trade (a profit-making undertaking or scheme being the Australian equivalent, see paragraphs 233 to 242 of this Ruling). 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. These factors are as follows:

• 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.

266. In determining whether activities relating to isolated transactions are an enterprise or are the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each particular case. This may require a consideration of the factors outlined above, however there may also be other relevant factors that need to be weighed up as part of the process of reaching an overall conclusion. 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.

From the information provided, there are several factors which we consider that the sale of the Sale Land is not in the course of an enterprise and simply represents the mere realisation of a capital asset. Therefore, you are considered not to be carrying on an enterprise as defined in section 9-20 of the GST Act. Factors which lead to this conclusion are as follows:

• you purchased the property over 50 years ago with the intention to reside on the property as your principal place of residence.

• you have lived on this property since originally purchasing it.

• there has been no change of purpose for what the Sale Land was held.

• you have not undertaken an enterprise or business upon the property and no additional land has been acquired to add to the original parcel of land.

• there is no plan for subdivision of the Sale Land (by you) and there is no business organisation.

• you have not undertaken this type of sale or development before.

• any development on the land will only be undertaken by the Developer. You have no connection to the Developer and are not involved in the development of the Sale Land, and

• you will not share in any profit derived by the Developer in respect of the development.

As the supply of the Sale Land is not made in the course of or furtherance of an enterprise being carried on by you, paragraph 9-5(b) of the GST Act is not satisfied. Therefore you will not be making a taxable supply and no GST is payable on the sale of the Sale Land.

Issue 2 Question 1

Summary

No, you are not required to be registered.

Detailed reasoning

As you are not currently registered for GST, you would only be liable to charge GST if you are required to be registered.

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

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.

Note: It is the entity that carries on the enterprise that is required to be registered (and not the enterprise).

Since we have established that you will not be carrying on an enterprise, you do not satisfy all of the requirements of section 23-5 of the GST Act. Accordingly, you will not be required to register for GST purposes with regard to the sale of the Sale Land.