Edited version of your written advice

Authorisation Number: 1012986463738

Date of advice: 18 March 2016

Ruling

Subject: GST and sale of property

Question

Is the Liquidator of X (In Liquidation) ('the Company') required to charge Goods and Services Tax ('GST') on the sale of a property located at Y ('the Property')?

Answer

No, the sale of the subject property is not a taxable supply.

This ruling applies for the following periods:

On or after 1 July 20XX to 31 December 20XX

Relevant facts and circumstances

You, X, are a company in Liquidation.

You were incorporated on X. Your principal operation was a, X business ('the Business'). You state that your business was never involved in property speculation or development.

You were registered for GST.

You purchased the Property on X for $X. GST was not charged on the sale of the Property.

At the time of purchase, the Property was a, X parcel of vacant land zoned rural residential. There were no dwellings on the Property.

The purpose of the purchase of the Property was for the personal use of your shareholders and/or directors. The Property was not intended to be used for any purpose related to the Business.

You constructed a large metal deck shed on the Property which was fitted out for residential accommodation.

The Property was only used for the personal use of the shareholders and/or directors of the Company and was not used for any purpose related to the Business.

You did not derive any income from the rent or other use of the Property.

You submit that the sale of the Property was not a taxable supply and to support this opinion, you noted that the 'Explanatory Memorandum to the GST Act' states that 'in the course or furtherance of an enterprise does not extend to the supply of private commodities, such as when a car dealer sells his or her own private car'.

X ('the Liquidator') was appointed Voluntary Administrator of the Company on X and was subsequently appointed Liquidator of the Company X.

The Liquidator, in their capacity as Liquidator of the Company, sold the Property to an unrelated party on X for $X. GST was not charged on the sale of the Property.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999; 9-5

Reasons for decision

GST is payable if an entity is making a taxable supply. This includes a company in liquidation.

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) 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 the indirect tax zone; 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 defined term in the GST Act.)

In your case you have supplied land for consideration of $X, the supply is connected with Australia and you were registered for GST. It is not GST-free or input taxed under the relevant provisions in the GST Act. Therefore, the question remains as to whether the sale of land in question was made in the course or furtherance of an enterprise that you carried on. 

Meaning of enterprise that you carry on

Miscellaneous Taxation Ruling MT 2000/1 considers the meaning of carrying on an enterprise. Although it considers its meaning in the context of the A New Tax System (Australian Business Number) Act 1999, the meaning applied equally to the term enterprise as used within the GST Act. Paragraph 9-20(1)(a) of the GST Act includes, under the definition of an enterprise, an activity, or series of activities, done in the form of a business.

Miscellaneous Tax Ruling MT 2006/1, together with Goods and Services Tax Determination GSTD 2006/6, provide the Commissioner's view on the meaning of an enterprise.

Business

Section 195-1 of the GST Act defines a business as any profession, trade, employment, vocation or calling, but does not include occupation as an employee. Paragraph 175 of MT 2006/1 confirms that the above definition is the same as the definition of business in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). Therefore, an entity that is carrying on a business for income tax purposes will be carrying on an enterprise for GST purposes, subject to an important qualification discussed further below.

The ITAA 1936 definition of business is considered in Taxation Ruling TR 97/11. Although TR 97/11 deals with carrying on a primary production business, the principles discussed in that Ruling apply to any business. Paragraph 12 of TR 97/11 makes the point that whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing all the relevant indicators. There is no single test of whether a business is being carried on.

TR 97/11 discusses the main indicators of carrying on a business and provides examples for the indicators. Paragraph 26 of TR 97/11 states that the indicators are:

• does the activity have a significant commercial purpose or character?

• does the taxpayer have more than a mere intention to engage in the activity?

• is there an intention to make a profit from the activity or a genuine belief that a profit will be made? Will the activity be profitable?

• is there repetition and regularity in the activity?

• is the activity of the same kind and carried on in a similar way to that of the ordinary trade?

• is the activity organised in a businesslike manner?

• what is the size or scale of the activity?

• is the activity better described as a hobby, recreation or sporting activity?

In addition, paragraph 18 of TR 97/11 states that the following three items are factors that support the main indicators:

• a business plan exists

• commercial sales of product, and

• taxpayer has knowledge or skill.

Applying the above statutory requirements and considerations to your situation, it is concluded that the supply of land, which was purchased in 20XX, has not been made in the form of a business. For example, the selling of the land did not have significant commercial purpose or character and was not carried on in a businesslike manner.

An isolated activity  

Paragraph 9-20(1)(b) of the GST Act also defines an enterprise as an activity or a series of activities in the form of an adventure or concern in the nature of trade. It needs to be determined whether the sale of land constituted an isolated activity that constitutes an adventure or concern in the nature of trade.

MT 2006/1 provides guidance as to how to determine whether a transaction relates to the nature of trade or investment. Relevant paragraphs state:

258. United Kingdom cases categorise assets as either trading assets or investment assets. Assets purchased with the intention of holding them for a reasonable period of time, to be held as income producing assets or to be held for the pleasure or enjoyment of the person, are more likely not to be purchased for trading purposes.

259. Examples of investment assets are rental properties, business plant and machinery, the family home, family cars and other private assets. The mere disposal of investment assets does not amount to trade.

260. Assets can change their character but cannot have a dual character at the same time.

261. Investment assets such as business plant and machinery are used by entities in carrying on a business. The purchase and disposal of those types of assets is ordinarily considered not to be an adventure or concern in the nature of trade for UK income tax purposes.

Isolated transactions and sales of real property

262. The question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions.

263. The issue to be decided is whether the activities 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. (In an income tax context a number of public rulings have issued outlining relevant factors and principles from judicial decisions. See, for example, TR 92/3, TD 92/124, TD 92/125, TD 92/126, TD 92/127 and TD 92/128.)

264. The cases of Statham & Anor v. Federal Commissioner of Taxation ( Statham ) and Casimaty v. FC of T ( Casimaty ) provide some guidance on when activities to subdivide land amount to a business or a profit-making undertaking or scheme. In these cases, farm land was subdivided and sold. Minimal development work was undertaken to meet council requirements and to improve the presentation of certain allotments. On the particular facts of these cases the courts held that the sales were a mere realisation of a capital asset.

265. From the Statham and Casimaty cases a list of factors can be ascertained that provide assistance in determining whether activities are a business or an adventure or concern in the nature of trade (a profit-making undertaking or scheme being the Australian equivalent, see paragraphs 233 to 242 of this Ruling). If several of these factors are present it may be an indication that a business or an adventure or concern in the nature of trade is being carried on. These factors are as follows:

• 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.

266. In determining whether activities relating to isolated transactions are an enterprise or are the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each particular case. This may require a consideration of the factors outlined above however there may also be other relevant factors that need to be weighed up as part of the process of reaching an overall conclusion. No single factor will be determinative rather it will be a combination of factors that will lead to a conclusion as to the character of the activities.

The main enterprise you carried on was, X. You state that this enterprise has never been involved in property speculation or development. Although the land was owned by the company, it is considered that other factors outweigh the view that the disposal of the land was part of the enterprise.

The deck shed was a minimal improvement made to the land prior to its sale and only for the occasional private use of directors/shareholders. The land was not kept for making a profit. The land was never purchased for business purposes but by reason of investment and/or private use of shareholders/directors.

Regarding your submission that the Property was the sale of a private commodity analogous to the car dealer selling his or her private car, this example does not apply in your circumstance because the car dealer owns the car in his own right whereas here, the company owns the Property, not its individual directors/shareholders.

On the facts you have provided, the supply is not in the course or furtherance of your enterprise of X. You were not carrying on an enterprise in the property market which is connected to an activity, or series of activities in the form of a business or an adventure or concern in the nature of trade. On the facts of the case the property was an investment asset, not a trading one. Therefore, the supply of land is not a taxable supply.