Edited version of your written advice

Authorisation Number: 1012994063773

Date of advice :6 April 2016

Ruling

Subject: GST and sale of property

Question 1

Does GST apply to the sale of property?

Answer

No.

Relevant facts and circumstances

You and your spouse purchased vacant land (the property) using money from private funds on dd/mm/yyyy for $X.

You and your spouse purchased the property with the intention of building your family home and raising your children in a semi-rural environment in close proximity to the city.

You and your spouse kept the property for personal enjoyment with your children on weekends such as walks, off road driving and riding the neighbours' horses.

You and your spouse did not intend to use the property for income producing purposes or as part of any other businesses that you carried on. You and your spouse also had no intention to develop the property or resell it at a profit.

There has not been any development activity on the property since acquisition.

Professionals that were engaged in relation to the property have only been engaged spasmodically to protect your and your spouse's interests in the property.

In year A and year B you and your spouse received $Y and $Z respectively from the previous owners of the property for agistment of their horses. This agistment income was included in your and your spouse's income tax returns in equal portions. No further agistment fees or any other income were received in the following years for this property.

You are currently not registered for GST for the property, either in a partnership with your spouse or individually.

You and your spouse jointly owned and operated a business, which was registered for GST. However, the GST registration for that business was cancelled when the business was sold.

Although you and your spouse did not build your family home on the property as intended, you two held onto the property as vacant land and the property was treated as a capital asset for taxation purposes.

The previous tax agent incorrectly lodged your and your spouse's income tax returns for year C, year D and year E claiming land development/subdivision deductions for the property.

You later engaged a new tax agent. After reviewing the business nature of the property and the inclusion of deductions in your and your spouse's income tax returns, the new tax agent considered that the property was not income producing or intended to be developed for resale and that you and your spouse were not carrying on a business of land subdivision and development. Thus, advice given by the previous tax agent relating to the allowable deductions of holding costs and other costs on the property was deemed to be incorrect.

Your new tax agent lodged amendments to your and your spouse's income tax returns to remove the deductions claimed against the property and the business schedules for the property.

You advised that although deductions were originally claimed in your and your spouse's income tax returns:

• there was no business development plan;

• no subdivision applications were lodged with the relevant council;

• the property was not viable for subdivision;

• the land was not recognised as trading stock in the accounts or tax returns of your other business or your individual tax returns;

• no GST had been claimed on the costs incurred on the property.

You and your spouse would like to sell the property to realise the capital value of the asset as you both have reached pension age with health concerns and the property holding costs are escalating annually, making it unaffordable to hold.

After selling the property, you and your spouse have no intention to purchase another property.

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 9-10

A New Tax System (Goods and Services Tax) Act 1999 section 9-15

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-25(4)

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

A New Tax System (Goods and Services Tax) Act 1999 section 23-5

A New Tax System (Goods and Services Tax) Act 1999 section 23-10

A New Tax System (Goods and Services Tax) Act 1999 section 23-15

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you must pay the GST payable on any taxable supply that you make.

A supply is a taxable supply if all the requirements of section 9-5 of the GST Act are met. The requirements under section 9-5 of the GST Act are:

(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.

In your situation, you will be selling the property for a sum of money. A sale of property for a sum of money is a supply for consideration GST purposes. This is because supply is defined broadly in section 9-10 of the GST Act to include any form of supply whatsoever and consideration is defined in section 9-15 of the GST to include any payment in connection with the supply.

Subsection 9-25(4) provides that a supply of real property is connected with the indirect tax zone if the real property, or the land to which the real property relates, is in the indirect tax zone and section 195-1 of the GST Act defines 'indirect tax zone' to mean Australia. As the property is located in Australia, the supply of the property is connected with the indirect tax zone.

Enterprise that you carry on

Section 9-20 of the GST Act provides that an enterprise is an activity, or series of activities, done:

a) in the form of a business; or

b) in the form of an adventure or concern in the nature of trade; or

c) on a regular or continuous basis, in the form of a lease, licence or other grants of an interest in property….

Paragraph 178 of 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 outlines the main indicators of carrying on a business. These include:

• a significant commercial activity;

• a purpose and intention of the taxpayer to engage in commercial activity;

• an intention to make a profit from the activity;

• the activity is or will be profitable;

• the recurrent or regular nature of the activity;

• the activity is carried on in a similar manner to that of other businesses in the same or similar trade;

• activity is systematic, organised and carried on in a businesslike manner and records are kept;

• the activities are of a reasonable size and scale;

• a business plan exists;

• commercial sales of product; and

• the entity has relevant knowledge or skill.

You and your spouse purchased the property using money from private funds with the intention to build your family home in which your family would reside. Besides small amounts of agistment income for 2 years, no income was received for later years including the current income year.

The property was left as vacant land and you and your spouse used it for personal enjoyment with your children on weekends such as walks, off road driving and riding the neighbours' horses.

Although there were deductions claimed and business schedules lodged against the property in your and your spouse's income tax returns, you have advised that those tax returns were incorrectly lodged by your previous tax agent. You, via your current tax agent, amended those tax returns to remove the deductions and business schedules.

You also advised that you and your spouse had a business and that business was registered for GST. However, when the business was sold the GST registration for that business was cancelled.

Furthermore, when you and your spouse purchased the property it was intended to be used for private purposes and thus was not purchased under or as part of the business that you and your spouse jointly owned and operated. As such:

• there was no business development plan for the property;

• no subdivision applications were lodged with the relevant council;

• the property was not treated as trading stock in the accounts or your individual tax returns or your other business' tax returns; and

• no GST had been claimed on the costs of holding the property.

Based on the above facts, we do not consider that there is an enterprise being carried on by you in relation to the property, either individually or in partnership with your spouse. Thus, the sale of the property would not be a supply made in the course or furtherance of an enterprise that you carry on.

GST registration

Section 23-5 of the GST Act states that you are required to be registered under this Act if:

(a) you are carrying on an enterprise; and

(b) your GST turnover meets the registration turnover threshold.

The current registration turnover threshold for an entity, as provided by section 23-15 of the GST Act, is $75,000.

Section 23-10 of the GST enables an entity to register for GST even if their turnover is below the registration turnover threshold and they intend to carry on an enterprise.

You advised that you are not registered for GST for the property, either in partnership with your spouse or individually.

As we have considered above that you are not carrying on an enterprise, section 23-5 of the GST Act would not be satisfied to warrant a requirement to register for GST.

Therefore, the sale of the property is not subject to GST as all of the criteria of a taxable supply under section 9-5 of the GST Act are not satisfied.