Edited version of your written advice

Authorisation Number: 1012732190306

Ruling

Subject: Whether sale of land is a taxable supply

Question

Is the Superannuation Fund (Fund) required to account for GST on the sale of a piece of land (Lot B) where:

• the Fund owns a property which, prior to subdivision, comprised a dwelling and appurtenant land;

• the Fund derives income from the dwelling;

• the Fund recently subdivided the property into Lot A (the dwelling and some of the land) and Lot B (vacant land); and

• the Fund intends to sell Lot B in order to have funds in order to pay a benefit to a member of the Fund?

Answer

No, the Fund is not required to account for GST on the sale of Lot B where:

• the Fund owns a property which, prior to subdivision, comprised a dwelling and appurtenant land;

• the Fund derives income from the dwelling;

• the Fund recently subdivided the property into Lot A (the dwelling and some of the land) and Lot B (vacant land); and

• the Fund intends to sell Lot B in order to have funds in order to pay a benefit to a member of the Fund.

Relevant facts:

The Fund has an Australian Business Number (ABN) but is not registered for GST.

The Fund owns a property which, prior to subdivision, comprised a dwelling and appurtenant land.

The Fund derives income from the dwelling.

Recently the Fund subdivided the property into two lots. Lot A comprises the dwelling and part of the land and Lot B comprises vacant land.

The Fund intends to sell Lot B and use the proceeds to pay a benefit to a member of the Fund.

The Fund's adviser confirmed that the Fund is a complying superannuation fund within the meaning of subsection 45(1) of the Superannuation Industry (Supervision) Act 1993.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999, section 9-5.

Reasons for decision

Summary

The Fund is not liable to account for GST in respect of the supply of Lot B. The supply of Lot B will not be a taxable supply because paragraph 9-5(d) of the GST Act (i.e. the Fund is registered for GST or liable to be so registered) is not satisfied.

Detailed reasoning

Taxable supply:

Subsection 7-1(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that GST is payable on taxable supplies and taxable importations. Section 9-5 of the GST Act states that an entity ('you') makes 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.

Supply made for consideration:

The sale of Lot B will satisfy paragraph (a) of the 'taxable supply' definition as it was stated in the ruling request that the Fund intends to sell Lot B.

Supply made in the course or furtherance of an enterprise:

In relation to paragraph (b) of the 'taxable supply' definition (the supply is made in the course or furtherance of an enterprise that you carry on), section 195-1 of the GST Act states that 'enterprise' has the meaning given by section 9-20 of the GST Act and that 'carrying on' an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

Paragraph 9-20(1)(da) of the GST Act states that an 'enterprise' is an activity, or series of activities, done:

(da) by a trustee of a complying superannuation fund or, if there is no trustee of the fund, by a person who manages the fund;

Section 195-1 of the GST Act defines 'complying superannuation fund' as having the meaning given by section 995-1 of the ITAA 97, section 995-1 of the ITAA 97 states that 'complying superannuation fund' means a complying superannuation fund within the meaning of section 45 of the Superannuation Industry (Supervision) Act 1993 (SISA), and subsection 45(1) of the SISA states:

(1)  A fund is a complying superannuation fund for the purposes of the Income Tax Assessment Act in relation to a year of income (the current year of income) if, and only if:

(a)  the Regulator has given a notice to a trustee of the fund under section 40 stating that the fund is a complying superannuation fund in relation to the current year of income; or

(b)  the Regulator has given a notice to a trustee of the fund under section 40 stating that the fund is a complying superannuation fund in relation to a previous year of income and has not given a notice to a trustee of the fund under that section stating that the fund was not a complying superannuation fund in relation to:

(i)  the current year of income; or

(ii)  a year of income that is:

(A)  later than that previous year of income; and

(B)  earlier than the current year of income

Paragraphs 98 to 100 of Miscellaneous Taxation Ruling MT 2001/6 indicate that where a superannuation fund is a 'complying superannuation fund', any activity or series of activities done by the trustee or person managing the complying superannuation fund is an 'enterprise' for GST purposes. On the other hand, if a superannuation fund is not a 'complying superannuation fund', whether or not the fund is carrying on an enterprise will depend on the application of paragraphs (a) to (c) of subsection 9-20(1) of the GST Act (e.g. whether there is an activity or series of activities done in the form of a business etc.):

98. There is a difference between the way the ABN Act and the GST Act determines whether (and which) superannuation funds carry on an enterprise.

99. Section 5 determines the entitlement of all superannuation funds to an ABN. Whether a superannuation fund is carrying on an enterprise is also considered under paragraph 9-20(1)(da) of the GST Act, however section 5 specifically governs their entitlement to an ABN. Section 5 provides that superannuation funds are taken to be entities carrying on an enterprise and ensures that all entities that meet the definition of a superannuation fund are entitled to an ABN.

100. In contrast, paragraph 9-20(1)(da) of the GST Act provides that an enterprise is an activity or series of activities done by a trustee of a complying superannuation fund or, if there is no trustee of the fund, by a person who manages the fund. The term 'complying superannuation fund' is a narrower term than 'superannuation fund'.

This view is repeated in paragraph 7 of Goods and Services Tax Determination GSTD 2006/6:

7. It should be noted that there is a difference between the way in which the GST and ABN Acts treat superannuation funds. Although superannuation funds have a common definition for GST and ABN purposes, there is a difference in the treatment when considering if they carry on an enterprise for GST purposes. This difference is that although all superannuation funds are entitled to an ABN (as entities taken to be carrying on an enterprise under section 5 of the ABN Act) broadly, for GST purposes, it is only a complying superannuation fund's activities that are taken to be an enterprise (paragraph 9-20(1)(da)). Other superannuation funds not meeting the requirements of paragraph 9-20(1)(da) fall for consideration under the more general terms of the remainder of subsection 9-20(1).

In the present case the Fund's adviser confirmed that the Fund is a complying superannuation fund. Subsection 9-20(1) states that an enterprise is 'an activity, or series of activities, done by a trustee or person who manages a complying superannuation fund. Consequently it is necessary to determine whether the proposed transaction in the present case is 'an activity, or series of activities'.

Paragraph 153 of MT 2006/1 states:

The ABN Act does not define an 'activity or series of activities'. In the absence of a statutory definition these terms take their ordinary meaning. An activity is essentially an act or series of acts that an entity does. Entities can undertake a wide range of activities with varying degrees of interrelationship. The meaning of the term 'activity, or series of activities' for an entity can range from a single undertaking including a single act to groups of related activities or to the entire operations of the entity.

Example 15 in MT 2006/1 discusses activities associated with the sale of real property:

Example 15 - activities associated with the sale of real property

161. Giovanna sold a block of units. What are the relevant activities in determining whether Giovanna carried on an enterprise?

162. Giovanna carried out a series of activities that led to the sale of the units. All of Giovanna's activities need to be considered. These included:

  assessing the economic viability of the project ;

  purchasing the land ;

  engaging an architect ;

  constructing a block of units on the land ;

  engaging a real estate agent and auctioneer ; and

  arranging for the sale of the units at auction.

163. 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 Giovanna carried on an enterprise.

Paragraph 163 in Example 15 suggests that in the present case, where land has been subdivided into two lots with the intention of selling one lot, the steps leading up to the sale of the subdivided lot constitute 'a series of activities' for the purpose of the 'enterprise' definition in subsection 9-20(1) of the GST Act. We therefore consider that there is a series of activities done by a trustee or person who manages a complying superannuation fund and that the sale of Lot B will be a supply made in the course or furtherance of an enterprise within the meaning of paragraph 9-5(b) of the GST Act.

Connected with Australia:

The sale of Lot B will satisfy paragraph (c) of the 'taxable supply' definition (the supply is connected with Australia) as Lot B is situated in Australia and subsection 9-25(4) of the GST Act states that a supply of real property (defined to include any interest in or right over land) is connected with Australia if the real property, or the land to which the real property relates, is in Australia.

Fund is registered or required to be registered:

Paragraph 9-5(d) of the GST Act states that an entity makes a taxable supply if that entity is registered for GST or required to be so registered.

The Fund has an ABN but is not registered for GST.

Section 23-5 of the GST Act states:

You are required to be registered under this Act if:

For the reasons set out above we consider that the Fund is carrying on an enterprise and therefore satisfies paragraph 23-5(a).

Pursuant to paragraph 23-15(1)(b) of the GST Act and regulation 23-15.01 of the A New Tax System (Goods and Services Tax) Regulations 1999 the registration turnover threshold is $75,000.

Section 188-10 of the GST Act sets out the circumstances in which an entity's GST turnover meets or does not meet a turnover threshold:

2) You have a GST turnover that does not exceed a particular turnover threshold if:

Subsection 188-15(1) of the GST Act sets out a general definition of 'current GST turnover', i.e. at a time during a particular month the sum of the values of all the supplies that an entity has made, or is likely to make, during the 12 months ending at the end of that month (subject to certain exclusions).

Section 188-25 sets out a general definition of 'projected annual turnover', i.e. at any time during a particular month the sum of the values of all the supplies that an entity has made or is likely to make during that month and the next 11 months (subject to certain exclusions).

The supplies that are excluded from the calculation of current GST turnover and projected GST turnover include supplies that are input taxed, supplies that are not for consideration, and supplies that are not connected with Australia. In addition, section 188-25 of the GST Act states:

In working out your projected GST turnover, disregard:

(a) any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours; and

(b) any supply made, or likely to be made, by you solely as a consequence of:

(i) ceasing to carry on an enterprise; or

(ii) substantially and permanently reducing the size or scale of an enterprise.

In relation to paragraph (a) of section 188-25 paragraph 31 of Goods and Services Tax Ruling GSTR 2001/7 states that 'capital assets' may be described as 'the business entity, structure or organisation set up or established for the earning of profits' and paragraph 32 states that capital assets include tangible assets 'such as your factory, shop or office, your land on which they stand'. Paragraphs 34 to 36 of GSTR 2001//7 explain the difference between capital assets and revenue assets - a asset is a revenue asset where the realisation of that asset is incidental to the carrying on of a business or where the disposal of that asset is the means by which an entity derives income.

In the present case the means by which the Fund will derive income will include the realisation of an asset, i.e. the sale of Lot B. Paragraphs 35, 46 and 47 of GSTR 2001/7 discuss whether an isolated transaction or dealing with a single asset is excluded from an entity's projected GST turnover:

35. If the means by which you derive income is through the disposal of an asset, the asset will be of a revenue nature rather than a capital asset even if such a disposal is an occasional or one-off transaction. Isolated transactions are discussed further at paragraphs 46 and 47.

46. An enterprise may consist of an isolated transaction or a dealing with a single asset. For example, an enterprise may consist solely of the acquisition and refurbishment of a suburban shop for resale at a profit. Where an entity engages in acquiring a single asset for resale at a profit, the activity will be an enterprise under paragraph 9-20(1)(b), because it is an activity in the form of an adventure in the nature of trade. As discussed in paragraph 35 of this Ruling, the disposal of that single asset is not the transfer of a capital asset. Consequently, that supply is not excluded from your projected GST turnover.

47. The disposal of that single asset, or the completion of that isolated transaction, is also not a transfer solely as a consequence of ceasing to carry on an enterprise. In such circumstances the enterprise ceases as a consequence of the disposal of the single asset, rather than the single asset being disposed of in consequence of the ceasing to carry on the enterprise.

In the present case the ruling request did not suggest that the Fund acquired the dwelling and appurtenant land for resale at a profit but rather in order to derive income from the dwelling on the property.

There is also guidance as to whether an isolated sale of real property is the mere realisation of a capital asset in paragraphs 262 to 302 of MT 2006/1, based on factors derived from Statham & Another v FCT 89 ATC 4070 and Casimaty v FCT 97 ATC 5135. We consider that the present case is closer to the examples of one-off subdivisions that are stated to be mere realisations of capital assets in paragraphs 288 to 302 of MT 2006/1, particularly Example 33:

Example 33

291. Ursula and Gerald live on a 2.5 hectare lot that they have owned for 30 years.

292. They decide to sell part of the land and apply to subdivide the land into two 1.25 hectare lots. The survey and subdivision are approved. They retain the subdivided lot containing their house and the other is sold.

293. Ursula and Gerald are not carrying on an enterprise and are not entitled to an ABN in respect of the subdivision as the subdivision and sale are a way of disposing of some of the land on which their home is situated. It is the mere realisation of a capital asset.

We therefore consider that, for the purposes of subsection 188-10(2) of the GST Act, the Fund has a GST turnover that does not exceed the registration turnover threshold because, per paragraph 188-10(2)(b), the Fund's projected GST turnover is below the registration turnover threshold. Consequently the Fund is neither registered for GST nor liable to be so registered as required by paragraph 9-5(d) of the GST Act, the supply of Lot B by the Fund will not be a taxable supply, and the Fund will not be liable to account for GST in respect of that supply.