Edited version of your written advice

Authorisation Number: 1012729513202

Ruling

Subject: GST and sale of land

Question 1

Does goods and services tax (GST) apply to the sale of land?

Answer

No.

Relevant facts and circumstances

• You are a trustee for a Trust and are not registered for GST.

• You acquired land in 198X.

• The land has never been used in a business undertaken by you.

• You have never carried on an enterprise/business.

• No finance was required at the time of the acquisition.

• At the time of purchase, the intention was to generate rental income.

• You had plans drawn up and lodged a development application with the council. This was approved but you never proceeded with the development.

• The property has remained vacant as such since 198X.

• You have now received an offer to sell the block of land.

Your contentions

• The sale of the land is a mere realisation of a capital asset and not a business or enterprise as tested under the guidelines of Tax Ruling MT 2006/1

• Taking into account GST Act s195-1 and the meaning of an Enterprise, the activities undertaken by the owners were: - 'Not a Business', 'Not in the Form of a Business' and 'Not an Adventure or Concern in the Nature of Trade'.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) 1999

Section 9-5

Section 9-20

Section 23-5

Reasons for decision

Question 1

Summary

The sale of the land is not subject to GST, the sale of the land is a mere realisation of a capital asset.

Detailed reasoning

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) defines a taxable supply. 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.

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

Items marked with an asterisk (*) are defined in the Dictionary at section 195-1 of the GST Act.

In your case, you will make supplies for consideration and the supplies will be connected with Australia. It must now be determined whether the supplies will be made in the course or furtherance of an enterprise that you carry on, and whether you are required to be registered for GST.

Under section 23-5 of the GST Act you are required to be registered if:

• You are carrying on an enterprise; and

• Your GST turnover meets the registration turnover threshold.

'Enterprise' is defined in subsection 9-20(1) of the GST Act. It states:

An enterprise is an activity, or series of activities, done:

(a) in the form of a *business; or

(b) in the form of an adventure or concern in the nature of trade; …

Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number discusses when an entity can be said to be carrying on an enterprise. Goods and Services Tax Determination GSTD 2006/6 Goods and services tax: does MT2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999? GSTD 2006/6 provides that the reasons in MT 2006/1 are considered to apply equally to the term 'enterprise' in the GST Act and can be relied on for GST purposes.

Paragraph 154 of MT 2006/1 provides that it is necessary to identify one activity or a series of activities that amount to an enterprise. Paragraph 159 provides that whether or not an activity or series of activities amounts to an enterprise is a question of fact and degree having regard to all of the circumstances of the case. Example 15 in MT 2006/1 provides that an activity such as the selling of an asset may not of itself amount to an enterprise but account should also be taken of the other activities leading up to the sale to determine if an enterprise has been carried on.

In the form of a business

An enterprise includes an activity, or series of activities, done in the form of business. MT 2006/1 presents some indicators of business derived from case law. There is no single test to determine whether a business is being carried on.

In the form of an adventure or concern in the nature of trade

There is also no single test to determine what is an adventure or concern in the nature of trade. MT 2006/1 recognises case law stipulating that an adventure or concern in the nature of trade implies a commercial, profit-making undertaking or scheme.

Paragraph 244 of MT 2006/1 provides that this undertaking must have the characteristics of a business deal and be of a revenue nature. Paragraph 247 of MT 2006/1 provides that where the property being sold provides personal enjoyment to the owner it is more likely to be an investment rather than a trading asset. Paragraphs 249 to 255 of MT 2006/1 provide that the length of ownership, the frequency of the transactions, supplementary work on the property, the circumstances that were responsible for the realisation and the motive are also relevant factors when determining whether an activity is in the form of an adventure or concern in the nature of trade.

In your case, you have owned the property for over 30 years as an investment that you intended to generate rental income.

You had plans drawn up and lodged a development application with the council which was subsequently approved. However, you have never 'realised' this asset and the land has remained vacant.

Considering these factors, the sale of the land was not in the form of an adventure or concern in the nature of trade.

As the sale of the land is a mere realisation of a capital asset, it is not made in the course or furtherance of an enterprise that you carry on.

As all the requirements in section 9-5 of the GST Act are not met the sale of your land is not a taxable supply. There is no requirement to register for GST.

As you are not required to be registered for GST there is no requirement to discuss whether the margin scheme can be applied to the sale of the land.