Edited version of your written advice

Authorisation Number: 1051419472215

Notice

This private ruling was revised following issue. This edited version has therefore been replaced with the edited version of the private ruling with the authorisation number of 1051422183381.

Date of advice: 24 August 2018

Ruling

Subject: GST and the sale of property

Question 1

Are you making a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax Act) 1999 when you sell property at a specified location?

Answer

No

Question 2

Are you required to give notification to the purchaser pursuant to subsection 14-255(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA)?

Answer

Yes, however the recipient is not required to withhold an amount of GST pursuant to section 14-250 of Schedule 1 to the TAA.

Relevant facts and circumstances

You are not registered for GST.

You purchased vacant land in xx/xxxx at a specified location (the Property).

You paid a deposit for the Property in xx/xxxx however title was not registered until xx/xxxx.

The Property is xxm² and zoned for residential use.

In xx/xxxx you entered into a contract for the construction of a single storey residential dwelling with X bedrooms, X living areas and X bathrooms.

Your initial intention was to either live in the Property or to rent/lease it out. Prior to purchasing the Property you had consulted with a relative, who resides in the area, who advised that leasing the Property would be a viable option.

You entered into a ‘construction loan’ to finance the expenses related to the build. On completion of the build, the loan converted to a standard housing loan being serviced by repayments from your salary and wages until such time that you make a decision as whether to rent, sell or live in the Property.

You have not previously been involved in purchasing and developing property.

You did not subdivide the Property at any stage (either prior to, or post construction of the new premises).

You have been approached by a local real estate agent who queried whether you were considering selling the Property as there were potential purchasers in the area.

To date, the Property has not been leased and you have not yet advertised the Property for lease.

You have recently entered into a sales agreement with the real estate agent however; you have advised the agent to hold off any interest until you confirm the GST status of any sale.

Relevant legislative provisions

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

Section 9-5

Section 9-20

Section 9-40

Taxation Administration Act 1953

Schedule 1 Section 14-250

Schedule 1 Subsection 14-255(1)

Reasons for decision

Note: In this reasoning, unless otherwise stated,

● all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

● reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

Question 1

Section 9-40 provides that you are liable for GST on any taxable supplies that you make.

Section 9-5 provides 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 for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Of relevance is whether you are making a supply of the Property in the course or furtherance of an enterprise that you carry on and if you are required to be registered for GST.

Section 9-20 provides that the term ‘enterprise’ includes, among other things, an activity or series of activities done:

● in the form of a business; or

● in the form of an adventure or concern in the nature of trade

Miscellaneous Taxation Ruling MT 2006/1 (MT 2006/1) provides the Tax Office view on the meaning of 'enterprise' for the purposes of entitlement to an Australian Business Number (ABN). Goods and Services Tax Determination GSTD 2006/6 provides that the discussion in MT 2006/1 equally applies to the term 'enterprise' as used in the GST Act and can be relied on for GST purposes.

In the form of a business

Paragraphs 170 to 232 of MT 2006/1 discuss factors to consider when determining whether an activity or series of activities are done in the form of a business. Paragraph 178 of MT 2006/1, with reference to Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production?, lists indicators of carrying on a business:

● 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.

Paragraph 179 of MT 2006/1 states that there is no single test to determine whether a business is being carried on. 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.

Application to your situation

In this case, you acquired the Property in xx/xxxx. At the time you acquired the Property consisted of vacant land. You acquired the Property for the purpose of building a house to use as either your principal place of residence or for an investment as a rental property.

You entered into a ‘construction loan’ to finance the expenses related to the construction with the loan converting to a standard housing loan on completion of the build. The loan is being serviced by repayments from your income as a salary and wage earner.

You have never previously been involved with the construction of new premises.

We consider that the activities you have undertaken do not display the salient indicator of a business, which are transactions entered into on a continuous and repetitive basis. This is a one off project that is not considered to being carried out in a manner similar to other property development businesses.

Given the above, we do not consider your activities in regard to the construction of the dwelling to have been done in the form of a business.

In the form of an adventure or concern in the nature of trade

Paragraph 234 of MT 2006/1 provides that 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.

Paragraphs 243 to 257 of MT 2006/1 discuss the characteristics of trade, including the badges of trade as referred to in a number of judicial decisions:

● the subject matter of the realisation;

● length of period of ownership;

● frequency or number of similar transactions;

● supplementary work on or in connection with the property realised;

● circumstances that were responsible for the realisation;

● motive

Application to your situation

Paragraph 247 of MT 2006/1 discusses that where property provides either an income or personal enjoyment to the owner it is more likely to be an investment than a trading asset. As discussed above you acquired the Property for the purpose of building a house to use as either your principal place of residence or for an investment as a rental property.

The Commissioner has formed the view that based on the information provided, you did not intend to engage in a profit making venture and therefore the activities undertaken in buying, building and selling the property in this instance, is not an enterprise for GST purposes. Factors that we considered include;

● Your property was acquired for the purpose of building a house for investment or as your principal place of residence.

● You have stated you have not previously engaged in similar activities.

● Your circumstances indicate you did not acquire property on a speculative basis where you were waiting for the land to be rezoned or allow for further subdivision opportunities. In your case the size of the land acquired was xxxm2 and already zoned residential.

● You entered into a ‘construction loan’ to finance the expenses related to the build. On completion of the build, the loan converted to a standard housing loan being serviced by repayments from your salary and wages. This type of financing arrangement is not consistent to those undertaken in a commercial or business-like manner.

● You did not provide evidence in relation to your planned proposal to lease the property.

A balanced view of these observations, with no one feature being determinative in isolation, reasonably leads to a conclusion your intention for holding the property was not for the purpose of trade. Whilst there has been a change in your intentions, that is to sell the Property as opposed to use the property for lease or as your principal place of residence, our view is that this fact, on its own, is not sufficient to regard your activities as being a commercial-like undertaking.

As such we do not consider your activities of constructing new residential premises and the subsequent sale of the Property as being done in the form of an adventure or concern in the nature of trade.

Conclusion

The activities you have undertaken in regard to the construction of new residential premises and the subsequent sale of the Property is not considered to be the course of an enterprise that you carry on.

Therefore you have not made a taxable supply as defined in section 9-5 and GST is not applicable to the sale of the Property.

Other relevant comments

Paragraph 265 of MT 2006/1 lists a number of factors established from judicial decisions which assist us in determining whether activities are a business or an adventure or concern in the nature of trade.

Paragraph 266 of MT 2006/1 states in part that 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. Whilst the factors and indicators listed in paragraph 265 provide assistance, other relevant factors may also be considered.

Another relevant factor may include the recurrent or regular nature of similar activities. That is, in the case similar activities are undertaken in the future on a continuous and repetitive basis, it may be considered that such actions may be considered an enterprise for GST purposes.

Question 2

Subsection 14-255(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides that a supplier of residential premises by way of sale must, before making the supply, give to the recipient a written notice stating whether the recipient will be required to make a payment to the Commissioner under section 14-250 of Schedule 1 to the TAA.

Section 14-250 of Schedule 1 to the TAA provides that a recipient of a taxable supply in certain circumstances involving real property is liable to withhold an amount, and pay that amount to the Commissioner.

Given the above, prior to settlement of the Property you must give written notice to the recipient stating whether they are required to withhold GST and pay that amount to the Commissioner. In this case, your supply to the recipient is not a taxable supply (as discussed in Question 1) and as such the recipient is not required to withhold GST under section 14-250 of Schedule 1 to the TAA.

Law Companion Ruling LCR 2018/4 Purchaser's obligation to pay an amount for GST on taxable supplies of certain real property (LCR 2018/4) discusses GST notification requirements for vendors of residential premises. Paragraphs 58 and 59 of LCR 2018/4 state:

58. A vendor of residential premises or potential residential land must give a written notice to the purchaser before making the supply. The notice must state whether the purchaser is required to make a payment under section 14-250 in relation to the supply.

59. This requirement applies to all vendors of residential premises and potential residential land, not only those who are registered or required to be registered for GST. If the vendor is not registered or required to be registered for GST, they simply state that the purchaser is not required to make a payment.