Edited version of your written advice

Authorisation Number: 1012752004014

Ruling

Subject: Goods and services tax and the sale of property

Question

Will you be liable for Goods and Services Tax (GST) on the sale of your property?

Answer

Yes. You will be liable for GST on the sale of your property.

Relevant facts and circumstances

• You are registered for GST.

• You purchased a property.

• You used the property to carry on your enterprise.

• In xxxx, the enterprise ceased trading.

• On or about that time, all of your obligations in relation to the business was finalised.

• You continued to be registered for GST after your enterprise ceased trading because you also operated a second enterprise.

• A month later, the property was listed for sale.

• The property continued to be listed for sale until it was sold.

• Four and a half years later, a contract was signed to sell the property.

• From the date the enterprise ceased trading until the date the property was sold, the property remained vacant. The property was not used for any activity during that period.

Relevant legislative provisions

A New Tax System (Australian Business Number) Act 1999

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

Reasons for decision

GST is payable on taxable supplies. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) refers to taxable supplies and 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 section 195-1 of the GST Act)

All of the above requirements must be satisfied for a supply to be a taxable supply under section 9-5 of the GST Act. From the information received, you made a supply for consideration when you sold the property for a sum of money. The supply is connected with Australia as the property is located in Australia. You are presently registered for GST. Accordingly you have satisfied the requirements of subsections 9-5(1), (c) and (d) of the GST Act.

Therefore it is now necessary to consider whether subsection 9-5(b) of the GST Act would be satisfied, that the sale of your property would be made in the course or furtherance of the enterprise that you carry on.

Carrying on an enterprise

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 (MT 2006/1) provides the Tax Office view on whether or an entity is carrying on an enterprise under the A New Tax System (Australian Business Number) Act 1999 (ABN Act).

Paragraph 1 of Goods and Services Tax Determination GSTD 2006/6 provides that the Tax Office view in MT 2006/1 can be applied equally to the term enterprise as used in the GST Act.

The term carrying on an enterprise is defined by section 195-1 of the GST Act and includes doing anything in the course of the commencement or termination of the enterprise. You advised that your enterprise ceased trading in XXXX. Where an enterprise is being terminated, the entity will still be regarded as carrying on an enterprise while it is in the process of being terminated.

According to paragraph 140 of MT 2006/1, an enterprise terminates when:

• all assets are disposed of or converted to another purpose or use, and

• all obligations are satisfied.

In your case, the property was used to carry on an enterprise. In XXXX, the enterprise ceased trading, and during that time, all obligations in relation to the business were finalised. What is left to be determined is whether all assets have been disposed of or converted to another purpose or use.

The disposal of assets may include the sale, scrapping or other disposal of the assets. You advised that a month after the hairdressing enterprise ceased trading, the property was listed for sale. There was a period of Y years between the business ceasing and the property being sold.

We will explore Paragraphs 142, 143 and 146 of MT 2006/1 to determine whether your enterprise terminated between the business ceasing and the property being sold.

Paragraph 142 of MT 2006/1 states:

A change in purpose or use of all assets could result in the termination of an enterprise. A change could occur where an asset is no longer used by the entity in the enterprise and is instead used for private purposes.

You advised that for a period of four and a half years, the property was vacant. The property was not used for any regular or continuous activity. Although the asset was no longer used by you in your enterprise, it was not used for private purposes. Accordingly, there has not been a change of purpose or use of the property to terminate the enterprise.

Paragraph 143 of MT 2006/1 states:

If some assets continue to be held by the entity because they cannot be disposed of or converted to another use and those assets are worthless or likely to be of little value, the enterprise can still be said to have terminated.

You advised that you continued to hold the property for a period of Y years because you were unable to disposed of the property during that time. The property was later sold for an amount of money. Accordingly, as the property is not considered worthless or likely to be of little value to terminate the enterprise.

Paragraph 146 of MT 2006/1 states:

However, an entity is still entitled to an ABN where it has ended some activities that themselves would constitute a separate enterprise but it is still running at least one enterprise. This is because an entity is entitled to an ABN while it is carrying on an enterprise. The entity is also entitled to an ABN where the only activities performed are those that it does in terminating the enterprise, for example the sale of its business premises. Those activities are done in carrying on an enterprise.

Accordingly, the sale of the property would satisfy the definition of carrying on enterprise under subsection 9-20(1) of the GST Act.

As the sale of the property was made in the course or furtherance of an enterprise that you carry on then paragraph 9-5(b) of the GST Act will be satisfied.

There are no provisions in the GST Act or any other legislation for your sale of the business premises to be a GST-free or an input-taxed supply. As section 9-5 of the GST Act is satisfied, the sale of the property will be a taxable supply and therefore subject to GST.