Edited version of your written advice

Authorisation Number: 1013001060910

Date of advice: 21 April 2016

Ruling

Subject: GST and Sale of Property

Question

Is the sale of your property subject to goods and services tax (GST)?

Answer

Yes, based on the facts provided, the sale of your property is a taxable supply and therefore, it is subject to GST.

Relevant facts and circumstances

You are registered for GST and carry on a business.

You acquired a property adjacent to your business. Before you purchased the property, the building had been used as a small commercial retail business and comprised a shop at the front and residential area at the back.

Since you purchased it, the building has been guttered and you would not classify any part of the building as residential. You also consider that the building is not capable of residential living.

Your intention when you purchased the property was for investment. However, since purchase, you have only used the property for business purposes.

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(1)

A New Tax System (Goods and Services Tax) Act 1999 section 9-20(2)

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 40-65

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

Reasons for decision

Summary

Based on the information provided, the sale of your property is subject to GST as the sale satisfies all of the requirements of a taxable supply and it is not GST-free or input taxed.

Detailed reasoning

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

The word 'you' used in the GST legislation applies to entities (individuals, companies, partnerships etc) generally.

Section 9-5 of the GST Act provides that 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, 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.

To be a taxable supply, all of the requirements of section 9-5 of the GST Act must be satisfied.

In respect of your sale of the property, there is clearly a supply, being a supply of real property. Consideration is also present as the property will be sold for an amount of money.

In addition, sections 195-1 and 9-25 of the GST Act defines 'indirect tax zone' to mean 'Australia'. As such, the supply of the property is connected with the indirect tax zone because the property is located in Australia. You are also registered for GST.

Therefore, the issue to be considered in this case is whether the sale of the property is being made in the course or furtherance of an enterprise that you carry on.

Enterprise

The term 'enterprise' is defined in subsection 9-20(1) of the GST Act to include, among other things, an activity or series of activities, done:

• in the form of a business

• in the form of an adventure or concern in the nature of trade, or

• on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.

However, subsection 9-20(2) of the GST Act provides that the term 'enterprise' does not include, among other things, an activity or series of activities, done:

• as a private recreational pursuit or hobby, or

• by an individual or a partnership without a reasonable expectation of profit.

Based on the information provided, it is considered that the above exclusions will not apply to your circumstances.

The Commissioner in Goods and Services Tax Determination GSTD 2006/6 and Miscellaneous Taxation Ruling MT 2006/1 provides guidance on the meaning of the term 'enterprise' for GST purposes.

From the facts provided, it is clear that you are currently carrying on a business and as such, you are carrying on an enterprise for GST purposes.

However, the requirement in section 9-5 of the GST Act is that the supply is made in the course or furtherance of an enterprise that is carried on. The term 'in the course or furtherance of' is not defined in the GST Act. Accordingly, it is appropriate to examine the ordinary meaning of those words.

The Australian Concise Oxford Dictionary (1997) defines the phrase 'in the course' as 'during' and the word 'furtherance' is defined to mean 'furthering or being furthered; the advancement of a scheme etc'.

The Explanatory Memorandum relating to the A New System (Goods and Services Tax) Bill 1998 confirms this ordinary meaning at paragraph 3.10 which states:

In the course or furtherance' is not defined, but is broad enough to cover any supplies made in connection with your enterprise. An act done for the purpose or object of furthering an enterprise, or achieving its goals, is a furtherance of an enterprise although it may not always be in the course of that enterprise.

This means that once an enterprise is being carried on, most activities in relation to that enterprise will be considered to be in the course or furtherance of that enterprise unless the GST legislation specifically states otherwise. As well, anything done in the course of commencing or terminating the enterprise will also be caught.

The facts show that since purchase you have used the property for business purposes only. In other words, you have been treating the property as a business asset of your enterprise.

The sale of a business asset would be considered to be made in the course or furtherance of the enterprise to which it relates.

Accordingly, the sale of your property, which is a business asset of your enterprise, would be a supply in the course or furtherance of the enterprise that you are carrying on. As such, the requirement in section 9-5 of the GST Act is satisfied.

As all of the requirements of section 9-5 of the GST Act are satisfied, the sale of your property will constitute a taxable supply and as such, will be subject to GST unless the sale of the property is GST-free or input taxed.

The sale of your property is not GST-free as there is no provision in the GST Act that will make the supply GST-free.

However, under section 40-65 of the GST Act, the sale of real property is input taxed if it is not new residential premises and it is residential premises to be used predominantly for residential accommodation.

The term 'residential premises' is defined under section 195-1 of the GST Act to mean land or a building that:

• is occupied as a residence or for residential accommodation or

• is intended to be occupied, and is capable of being occupied as a residence or for residential accommodation (regardless of the term of the occupation or intended occupation) and includes a floating home.

The requirement in section 40-65 of the GST Act that premises be 'residential premises to be used predominantly for residential accommodation' considers the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation rather than an examination of the subjective intention of, or use by, any particular person.

Further, paragraph 10 of the Goods and Services Tax Ruling 2012/5 states that:

… Premises that display physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises even if they are used for a purpose other than to provide residential accommodation (eg. where the premises are used as a business office).

Therefore, your property will only constitute residential premises if the physical characteristics indicate that it is suitable for, and capable of, providing residential accommodation even though you used it as a business asset.

To be suitable for, and capable of, being occupied as a residence or for residential accommodation, the premises must:

• provide shelter and basic living facilities, and

• be fit for human habitation.

You have advised that before you purchased the property, the building comprised a shop at the front and residential area at the back of the building. However, since purchase the building has been guttered and even though the building may provide shelter, it does not have basic living facilities and is no longer fit for human habitation.

On the facts provided, the building is not suitable for, or capable of, being occupied as a residence or for residential accommodation. Therefore, neither the building as a whole nor any part of it would constitute residential premises.

As such, the sale of your property is not input taxed and accordingly, it is subject to GST as it satisfies all the requirements for a taxable supply under section 9-5 of the GST Act.