Edited version of your written advice

Authorisation Number: 1012948908229

Date of advice: 29 January 2016

Ruling

Subject: GST and sale of property

Question

Is the sale of your property subject to GST?

Answer

No.

Relevant facts and circumstances

You are not registered for GST.

You purchased residential property at a specified location.

You purchased the property with your child and their spouse as joint tenants.

The existing dwelling was subsequently demolished with the land being subdivided into three blocks and new residential homes constructed on each block.

The original intention was that you would use one home as your principle place of residence, your child and their spouse would occupy another of the homes as their principle place of residence and the third home to be rented out.

In the process of the subdivision, title to each block was transferred to each of the original joint tenants. One home is held by your child's spouse, another by your child and another held in your name.

Your home is a X bedroom, X bathroom residential home (the Property).

You have recently been diagnosed with a medical condition which has made it difficult to maintain the Property.

As a result of the difficulty in maintaining the Property and the cost of medical expenses, you sold the Property and have since been in the care of your child and their spouse.

Settlement was on a specified date.

You are currently residing in your child's property and your child and their spouse reside in another property.

You do not carry on any enterprise or business activity.

You have not previously undertaken similar property developments.

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. and

A New Tax System (Goods and Services Tax) Act 1999 Section 9-40.

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 supplies that you make.

Section 9-5 provides you make a taxable supply if: 

• you make the supply for consideration

• the supply is made in the course or furtherance of an enterprise that you carry on

• the supply is connected with the indirect tax zone (Australia), and

• 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.

As you are not registered for GST, the issue in this case is whether you are required to be registered. In addressing this issue we will initially consider whether your activities are in the course or furtherance of an enterprise that you carry on.

Enterprise

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.

You have conducted a series of activities that need to be considered in determining whether they amount to being 'in the course or furtherance of an enterprise that you carry on' including:

• the purchase of the original land and house

• demolition of the existing house

• partitioning of the land (i.e. the division of land and the transfer of the divided lots between the co-owners)

• construction of the new premises, and

• sale of the premises.

The ATO view on the meaning of the term 'enterprise' is explained in detail in 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).

Your activities did not amount to a business engaged in a regular basis. Therefore we will consider whether you were carrying on an enterprise as a one-off or isolated real property transaction which has the characteristics of a business deal.

Paragraph 244 of MT 2006/1 provides that an adventure or concern in the nature of trade includes a commercial activity that does not amount to a business but which has the characteristics of a business deal. Such transactions are of a revenue nature. However, the sale of the family home, car and other private assets are not, in the absence of other factors, adventures or concerns in the nature of trade. The fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature.

In this case, we consider the series of activities you conducted above are in connection to the establishment/construction and intended occupation of your principle place of residence (a private asset).

A scenario similar to your situation is outlined in example 6 at paragraphs 79 to 85 of Goods and Services Tax Ruling GSTR 2009/2 Goods and services tax: partitioning of land (GSTR 2009/2). In the example, 'Caroline' conducts similar activities to you with the intention to use the house as a primary residence and is not carrying on an enterprise. Although you sell your Property, we consider that your intention when undertaking the activities was to occupy the Property as your principle place of residence. Your sale of the Property is a result of the change in your medical condition necessitating the sale due to your inability to maintain the Property and the satisfaction of medical expenses.

Given the above we consider that you are 'not carrying on an enterprise' and that 'the purpose of the arrangement is private and domestic in nature'.

GST registration

As a requirement of GST registration is that you are carrying on an enterprise and as discussed above, we do not consider your activities were in the course of carrying on an enterprise, you are not eligible to register for GST.

Conclusion

The sale of your Property (and other related activities) was not in the course or furtherance of an enterprise that you carried on. Furthermore you are neither registered nor required to be registered for GST. As such, the sale does not satisfy the definition of a taxable supply and GST is not applicable to the sale.