Edited version of your written advice

Authorisation Number: 1051196807165

Date of advice: 22 March 2017

Ruling

Subject: GST and the sale of property

Question 1

Are you liable for GST on the sale of the Property?

Answer

No, you are not liable for GST on the sale of the Property.

Question 2

Are you required to register for GST as a consequence of selling the Property?

Answer

No, you are not required to register for GST as a consequence of selling the Property.

Relevant facts and circumstances

You are individuals who own the Property as Tenants in Common. There has been no change in ownership for many years.

There is no residence on the Property. The vegetable growing area is approximately X square metres. The Property was never used in any form of enterprise or profit making venture. It has been used simply for domestic purposes growing vegetables for private consumption and cattle for grazing. The produce has never been sold nor has any form of business venture been undertaken on the Property. The only improvement has been a small shed.

You also own a separate commercial property as a partnership at X (Commercial Property) which provides the partnership with income. The partnership was registered for GST on X, has different ownership portions than the Property and does not include as partnership assets any of your private or domestic assets, including the Property.

You want to know if the proposed sale of the Property is a taxable supply and whether you are required to register for GST if you sell the Property.

Relevant legislative provisions

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999

Section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999

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

Section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999

Paragraph 188-25(a) of the A New Tax System (Goods and Services Tax) Act 1999

Reasons for decision

Questions 1 and 2

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.

Under section 9-5 of the GST Act, 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 criteria in section 9-5 of the GST Act must be satisfied.

In your case, the Property is a supply of real property. Consideration is present as the Property will be sold for an amount of money and the supply is connected with the indirect tax zone (Australia). You are registered for GST. Therefore, it is necessary to determine if the sale of the Property will be made in the course or furtherance of an enterprise that you carry on.

The term 'enterprise' is defined in section 9-20 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.

Your activity of leasing out the Commercial Property is an enterprise for GST purposes.

The phrase, 'in the course or furtherance of' is not defined in the GST Act. However, the Explanatory Memoranda relating to the A New Tax System (Goods and Services Tax Administration) Bill 1998 contains the following discussion 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.

Private supplies are not considered to be 'in the course or furtherance of' an enterprise eg when a car dealer sells their private car.

The view that a business can have assets for a private purpose is illustrated in Goods and Services Tax Ruling GSTR 2006/4 at paragraphs 55 and 56. These paragraphs state:

55. You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. The acquisition needs to be made in the course of the activities that constitute your enterprise. An acquisition is made 'in carrying on your enterprise' if it is made for the purposes of that enterprise, but not if it is made for some other purpose. You could engage in an activity that is usually done by the enterprise, but is not for the purposes of that enterprise.

Example 1 - carrying on an enterprise

56. Boatco Pty Ltd (Boatco) is trustee for a discretionary trust which operates a business of importing and selling luxury boats. Boatco buys a cruiser solely for the private use of Mike and his family, who are the beneficiaries of the trust. The acquisition of the boat is not made in 'carrying on' Boatco's enterprise, even though, Boatco usually makes acquisitions of boats in carrying on its enterprise.

You purchased the Property as private individuals for private and domestic purposes only. No enterprise was ever conducted in connection with the Property. Subsequent to this you commenced a partnership when you purchased the Commercial Property. Your partnership ABN became active and GST registration commenced both on X.

It is considered that the Property was purchased for private purposes. It did not become an asset for the partnership leasing enterprise. Therefore, the supply of the Property will not be made in the course or furtherance of the partnership leasing enterprise that you carry on.

Enterprise: Activity done in the form of an adventure or concern in the nature of trade

Section 9-20 of the GST Act defines enterprise to include ‘an activity, or series of activities, done in the form of an adventure or concern in the nature of trade’.

Goods and Services Tax Determination GSTD 2000/8 and Miscellaneous Tax Ruling MT 2000/1 represent the Tax Office view in regards to enterprise.

Paragraph 8 of GSTD 2000/8 states:

8. An adventure or concern in the nature of trade includes a commercial activity that does not amount to a business. Isolated transactions with commercial characteristics fall into this category. However, it does not extend to the mere realisation of investment or private assets such as the family home and private cars.

Paragraph 74 of MT 2000/1 states:

74. Whether or not there is a trade or an adventure in the nature of trade is a question of fact and degree. It should have the characteristics of a business deal.

In your circumstances, the sale of the Property does not have the necessary commercial flavour to fall under the definition of enterprise of section 9-20 of the GST Act because the Property:

● will be sold with the only improvement being the shed

● was purchased with the intention of using it for private purposes

● is an investment asset, rather than an asset which forms part of an enterprise, and

● you are not in the business of buying and selling land, i.e. this is a one-off activity for you.

Therefore, the sale of the Property is not in the course or furtherance of an enterprise that you carry on (in the form of an adventure or concern in the nature of trade).

As all of the requirements of section 9-5 of the GST Act will not be met, the sale of the Property will not be a taxable supply and as such, will not be subject to GST.

Registration

Section 23-5 of the GST Act states that you are required to register for GST if you are carrying on an enterprise and your annual turnover is greater than $75,000. Based on your circumstances, the Property is an investment capital asset, rather than an asset which forms part of an enterprise. 

Paragraph 188-25(a) of the GST Act excludes the transfer of ownership of a capital asset from an entity's projected annual turnover. As the sale of the Property is disregarded from the projected annual turnover, you are not required to be separately registered as a partnership for GST for the sale of the Property.