Edited version of your written advice

Authorisation Number: 1012795009279

Subject: GST and sale of property

Question

Is GST payable on the sale of the Property?

Answer

No.

Relevant facts and circumstances

The Property was acquired by Entity A approximately 65 years ago and bequeathed to his/her spouse (Entity B) on his/her death.

On the death of Entity B, the Property was held by Entity C (the nephew of Entity B) in his/her capacity as Executor of the Estate of Entity B.

The terms of Entity B's Will provided:

• Should Entity C wish to retain the Property (on which he had resided for many years), Entity C was required to distribute amounts to a number of other beneficiaries within a specified period following Entity B's death.

• In the case Entity C did not retain the Property; the Property should be sold within a specified time with all beneficiaries sharing the sale proceeds from the sale of the Property.

• In the case the other beneficiaries were not paid out by Entity C, Entity C would only be entitled to a xx% share of the eventual sale proceeds and the right to live and use the Property as he saw fit until the Property was sold. The remaining xx% of the proceeds from the eventual sale of the Property would be distributed to the other beneficiaries.

• The interests of the beneficiaries are secured by way of a caveat registered over the Property.

Entity C did not pay out the beneficiaries and as such the Estate of Entity B remains in a process of administration until the Property is sold.

No income has been derived by the Estate of Entity B from the Property during the period of administration of her estate.

Entity C passed away with Entity D (you) appointed as the Executor of the Estate of Entity C. At that time you also assumed the role of Executor of Entity B's estate (being the Executor of the Estate of Entity C).

The Property is a number of hectares in area and contains two residential premises.

Historically, one of the residences was used by Entity B as her main residence (up until the date of her death) with the second residence being occupied by Entity C.

Following the death of Entity B, you and Entity C resided in one of the residences with the other residence remaining vacant until it was used by your daughter as her main residence.

The predominant use of the Property was for residential purposes.

A small area of the Property was used by Entity C as part of a small scale grape growing enterprise which he carried on as a sole trader. No payments were made, nor required to be made, to Entity B (prior to her death) or her estate after her death for the use of the portion of the Property in Entity C's grape growing enterprise.

Entity C was registered for GST (in respect of his/her small scale farming enterprise) for a number of years until cancelling the GST registration when his/her turnover fell below the GST registration threshold.

Entity C re-registered for GST a couple of years later until the date of his/her death in order to be eligible to claim fuel tax credits.

Entity C's grape growing enterprise ceased immediately on his/her passing.

The Estate of Entity C does not have an ABN and is not registered for GST. The Estate did not maintain the grape vines on the Property and on the death of Entity C began the process of immediately terminating the enterprise.

The Estate of Entity B does not have an ABN and is not registered for GST. The Estate did not carry on an enterprise with respect to the Property (nor has the Estate derived any income from the use of the Property which was predominately residential). The Estate has no intention of commencing to carry on an enterprise in relation to the Property.

You, as the Executor of the Estate of Entity C and as the Executor of the Estate of Entity B, now hold the title to the Property awaiting its potential sale and subsequent distribution of net proceeds to the beneficiaries of Entity B's Estate.

Prior to his/her death, Entity C (in his/her capacity as the Executor of the Estate of Entity B) together with surrounding land owners (collectively referred to as the Owners Group) jointly applied for the land owned by the members of the Owners Group to be rezoned from rural to urban.

The properties owned by the Owners Group will remain on separate titles and not be merged prior to the sale of the Property.

It was and remains the intention of the members of the Owners Group to do no more than is necessary to secure the rezoning of the land.

There have been no physical changes to the land nor any infrastructure put in place to secure the zoning change from rural to urban.

There is, and never has been any formal business agreement between the members of the Owners Group in relation to the rezoning project carried on by the Owners Group.

The Owners Group engaged an expert project manager (Project Manager) to assist the Owners Group through the rezoning process.

Members of the Owners Group contributed to a joint bank account to cover costs incurred in the rezoning process. Costs were apportioned based on each member of the Owners Groups land size as a proportion of the combined size of the land of the Owners Group.

No costs have been paid by you (in your capacity as Executor of the Estate of Entity B) since you assumed the role. The costs attributed to the Estate of Entity B have been borne by the other members of the Owners Group.

The rezoning application was successful and an Information Memorandum seeking expressions of interest for the purchase of the land has been issued.

Prospective purchasers will be invited to make an offer to purchase the entire land owned by the Owners Group. The Owners Group will determine if they all approve the offer price and each member of the Owners Group must agree to the total offer price.

If the offer is accepted, separate contracts for the sale of land will be entered into by each of the members of the Owners Group. That is, there will be separate contracts between each member and the purchaser.

You (in your capacity as Executor of the Estate of Entity B) have not, and have no intention to, carry on an enterprise in relation to the Property.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 9-40

Section 9-5

Section 9-20

Section 23-5

Section 23-10.

Reasons for decision

Note: In this reasoning, unless otherwise stated,

• all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

• reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

Section 9-40 provides that you are liable for GST on any taxable supply you make. The term 'taxable supply' is defined in section 9-5. 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 for GST.

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

The issues in this case are whether the supply of the Property will be made in the course or furtherance of an enterprise that you carry on and whether, as you are not registered for GST, you are required to be registered for GST.

In the event that the answer to these two issues is 'Yes', we will need to examine whether the supply is input taxed.

Section 9-20 provides that the term 'enterprise' includes, among other things, an activity or series of activities done in the form of a business or done in the form of an adventure or concern in the nature of trade. The phrase 'carry on' in the context of an enterprise includes doing anything in the course of the commencement or termination of the 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 the meaning of 'enterprise' for the purposes of entitlement to an Australian Business Number (ABN). Goods and Services Tax Determination GSTD 2006/6 provides that the discussion in MT 2006/1 equally applies to the term 'enterprise' as used in the GST Act and can be relied on for GST purposes.

In this case we need to consider whether the activities of applying for rezoning and subsequent sale of the Property to be in the course of carrying on an enterprise.

Paragraph 262 of MT 2006/1 acknowledges that the question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions. Paragraph 263 continues, stating that the issue to be decided is whether the activities being conducted 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.

The cases of Statham & Anor v. Federal Commissioner of Taxation (Statham) and Casimaty v. FC of T (Casimaty) established a number of factors in determining whether activities are a business or an adventure or concern in the nature of trade with reference to real property transactions including:

• 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.

No single factor will be determinative of whether the activity or activities will constitute either a business or an adventure or concern in the nature of trade.

In this case, the activity involves a single property being numerous hectares in area containing two dwellings. One dwelling was occupied by Entity B as her principal place of residence prior to her death with the second dwelling occupied by Entity C. On her death, the Property continued to be occupied by Entity C (a beneficiary to Entity B's estate) as his/her principal place of residence whilst conducting a small business on the Property.

Under the terms of the Will of Entity B, the Property is to be sold with the proceeds to be distributed amongst Entity C and further additional beneficiaries.

The Property is currently being used as residential premises and as such, there has been no change of purpose for which the land is held.

Additional land has not been acquired during the rezoning process. Whilst the rezoning application relates to a larger area of land than that held by the Estate, and the fact that a prospective purchaser will make a single offer for the combined properties of the Owners Group, no additional land will be acquired and title in the other properties will remain with the individual owners of such land.

The Property was, and continues to be occupied as residential premises and is not considered to be a business asset. Entity B did not conduct any business activity in regard to the Property.

Whilst you (in your capacity as Executor of the Estate of Entity B) will not be subdividing and developing the Property, the expert engaged to act on behalf of the Owners Group would develop a coherent plan in presenting the rezoning application to the relevant Government authorities.

The Estate has not borrowed funds in order to finance any costs related to the rezoning process. Whilst there have been costs attributed to the Estate of Entity B such costs have been borne by the other members of the Owners Group. The Estate of Entity B has not paid any amounts in relation to such costs.

Furthermore, it is your intention to do only what is necessary to secure the rezoning of the land and there have been no additional buildings erected on the Property.

Given the circumstances discussed above, we consider that the activities associated with the application for the re-zoning and subsequent sale of the Property do not constitute 'carrying on an enterprise' for the purposes of GST.

GST Registration

Section 23-5 provides that you are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold (currently $75,000 or$150,000 for non-profit bodies).

Section 23-10 provides that you may register for GST if you are carrying on an enterprise, regardless of your GST turnover.

In both cases, a common requirement for GST registration is that you are carrying on an enterprise.

As discussed above, we do not consider you to be carrying on an enterprise. As such you are not eligible for GST registration.

Conclusion

GST is payable on any taxable supplies that you make. The requirements of a taxable supply include that the supply be made in the course or furtherance of an enterprise that you carry on and that you are registered or required to be registered for GST.

In this case, the sale is not considered to be in the course or furtherance of an enterprise that you carry on and you are neither registered nor required to be registered for GST in your capacity as Executor of the Estate of Entity B.