Edited version of your written advice

Authorisation Number: 1051377958689

NOTICE

This is an edited version of a revised private ruling. It replaces the edited version of the private ruling with the authorisation number 1051360151696

Date of advice: 1 August 2018

Ruling

Subject: GST and the sale of real property

Question

Are you, A & B the partnership entity, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for the sale of your property located at a specified address in Australia (the Property) and therefore GST is payable on the sale?

Answer

No, you are not making a taxable supply under section 9-5 of the GST Act for the sale of the Property and GST is not payable on the supply.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

Related entities:

● A and B in their capacity as individuals are referred to as Mr and Mrs A. Currently, Mr and Mrs A are not individually registered with an Australian business number (ABN) or registered for GST.

● Mr and Mrs A are the partners of the partnership, A & B partnership, registered with an ABN (the Partnership). The Partnership was registered for GST from ddmmyyyy to ddmmyyyy.

● Mr and Mrs A are also the directors and shareholders of the A Proprietary Limited with an ABN (the Company). The Company was registered for GST from ddmmyyyy to ddmmyyyy.

Background facts:

In yyyy, Mr and Mrs A purchased a number of acres (x hectares) of land on the outskirts of a specified address in Australia (the Property/the Land), as they desired to live on a large country site.

In yyyy, Mr and Mrs A built a house together with sheds and a garage at the rear portion of the Property which has been their residence until the present day. The sheds are used to keep equipment used to maintain the Property.

The Land is densely covered by trees and bushes over its entire area, with some grass areas and water features such as lakes and dams. The Property is populated with numerous species of wildlife, making the Property a nature reserve.

The Property is listed by the XYZ Council as green wedge zone in yyyy, with only one house permitted on the land and the Land is not zoned for subdivision. This zoning is still applicable in yyyy.

In yyyy, Mr and Mrs A commenced development of a specified park towards the front portion of the Property.

The specified park business known as the A park business (the Business) was operated in the name of the Company and did not commence until yyyy. The Business opened to the public for a specified number of hours per week on certain days. The Business ceased at the end of the particular financial year (year ended ddmmyyyy).

All of the A park development costs, set up costs and the initial purchase of plant and equipment to enable the Business to commence operations were paid for by the land owners. The land owners own the A park and the relevant plant and equipment. The Company had no funds of its own during that period.

Other than the Company sharing in the payments of expenses relating to utilities for the Property, no other consideration was received by you from the Company for the use of the land.

All subsequent purchases of plant and equipment once the Business had commenced operations to the date of ceasing the Business were paid for by the Company and included in the Company’s accounts as depreciable fixed assets.

The Business infrastructures/improvements on the Land and plant and equipment include various specified fixtures, facilities, assets and public car parking area.

The Infrastructures affixed to the land form part of the land and will remain attached to the land at settlement. The title to the land includes all fixtures.

The Business area took up around a specified number of acres of the total land area of the Property, and was the only area accessible to the general public using the A park facility. From information on the internet, the A park wound through a specified number of acres of bushland.

On the sketch plan of the Property provided, a certain number of areas including the residential premises are marked as private property and other areas including the A park as public areas. The markings indicate that the majority of the land relates to the residential premises with a minimal area being for the A park.

The Partnership was registered for GST from ddmmyyyy. You advised that the registration was in relation to the enterprise of leasing your commercial property at another location away from the Property. The Partnership had cancelled its GST registration effective ddmmyyyy. The reason for cancellation of the GST was because:

● the turnover from the lease of the commercial property for the yyyy/yyyy year was $ being below the GST registration turnover threshold of $75,000.

● the RST business conducted under the same GST registration had a turnover of $ in the yyyy/yyyy year.

● the combined turnovers are below $75,000 GST registration threshold.

Other facts:

In mmyyyy you entered into the Contract of Sale of Real Estate of the Law Institute of a specified State (the Sale Contract) for the sale of the Property with settlement scheduled to take place in mmyyyy. The settlement was scheduled on this basis at the request of the purchaser.

The sale of the Property does not include the Business which had wound up on ddmmyyyy.

All of the Business improvements/infrastructures/plant and equipment associated with the A park will be included in the sale as inspected.

Clause xx of the General Conditions to the Sale Contract states that the vendor warrants that at settlement the vendor will be the unencumbered owner of any improvements, fixtures, fittings and goods sold with the land. Special conditions to the Sale Contract include that all equipment and tools as inspected at time of purchase is included in the sale.

The sale contract provides that the sale price is $ which includes the improvements, fixtures, fittings and goods sold with the Land. You did not set a separate price or a value for these items.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 38

A New Tax System (Goods and Services Tax) Act 1999 Division 40

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

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

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

Detailed reasoning

In the below reasoning, the expression ‘you’ refers to the partnership entity of A & B partnership.

Under section 9-40 an entity must pay the GST payable on any taxable supply that the entity makes, and section 9-5 provides for taxable supplies as follows:

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.

Section 195-1 states that if a provision of the GST Act uses the expression ‘you’, it applies to entities generally, unless its application is expressly limited.

Division 38 and 40 provide for certain supplies to be GST-free and input taxed respectively. Where a supply is GST-free or input taxed, GST is not payable.

In this case, we consider Division 38 has no application to the sale of the Property to make it GST-free.

In considering whether Division 40 applies, we refer to subsection 40-65(1) which provides that a sale of real property (other than commercial residential premises or new residential premises) is input taxed to the extent that the property is residential premises to be used predominantly for residential accommodation.

The sale of residential premises used as a residence generally satisfies subsection 40-65(1) to be an input taxed supply. Accordingly, we consider the sale of that part of the Property relating to the residence would generally be an input taxed supply and GST would not be payable.

In relation to the sale of real property (other than residential premises that are input taxed) we consider the sale to be a taxable supply where all the conditions specified in section 9-5 as listed above are satisfied.

In this case, your sale of the Property (other than the part relating to the residence) together with the A park and associated plant and equipment:

● is for consideration

● is located in Australia

This means, paragraphs 9-5(a) and (c) are satisfied and we need to determine whether paragraphs (b) and (d) will be satisfied to make the sale of this part of the Property a taxable supply.

Enterprise – paragraph 9-5(b)

One of the conditions specified in paragraph 9-5(b) for an entity to be making a taxable supply is that the entity makes the supply in the course or furtherance of an enterprise.

The term enterprise is defined in section 9-20 to include:

(1) 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 grant of an interest in property; or

…

(2) However, enterprise does not include an activity, or series of activities, done:

…

(c) by …a * partnership (all or most of the members of which are individuals), without a reasonable expectation of profit or gain; or

…

In your case:

● you have been providing/granting to your related entity (the Company) the right to use your property and your A park together with the associated plant and equipment

● other than the Company sharing in the payments of the expenses on utilities in relation to the Property, you do not receive any other consideration for the use of the land, the A park structures and the plant and equipment.

Based on the above activities, we would generally consider you to have been carrying on an enterprise under paragraph 9-20(1)(c). However, we also consider the activities were carried out by you a partnership entity without a reasonable expectation of profit or gain. Accordingly, the exception in paragraph 9-20(2)(c) applies and you are not considered as carrying on an enterprise in relation to your activities of providing the above assets to the Company.

In regards to the activity of selling the Property, we refer to the guidelines in Miscellaneous Taxation Ruling MT 2006/1The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1).

Goods and Services Tax Determination GSTD 2006/6 Goods and services tax: does MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999? explains that the principles in MT 2006/1 apply equally to the terms 'entity' and 'enterprise' as in the GST Act and can be relied upon for GST purposes.

MT 2006/1 explains:

234. Ordinarily, the term 'business' would encompass trade engaged in, on a regular or continuous basis. However, an adventure or concern in the nature of trade may be an isolated or one-off transaction that does not amount to a business but which has the characteristics of a business deal.

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…

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. …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.

In weighing up the circumstances of the sale of your property together with the assets on the land we have considered all the relevant factors including factors relating to those specified in the above paragraphs of MT 2006/1. We concluded that the sale of your property with the other assets would be the mere realisation of a capital asset that does not amount to an enterprise.

As we have determined you are not carrying on an enterprise in respect of the Property, your supply of the Property with the accompanying assets does not meet the condition of paragraph 9-5(b). Accordingly, GST will not apply to the sale of the Property including the accompanying assets.