Edited version of your written advice

Authorisation Number: 1051420524328

Date of advice: 28 August 2018

Ruling

Subject: GST and the sale of property

Question 1

Will you be making a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax Act) 1999 when you sell vacant land located 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?

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.

In xx/xxxx you acquired property located at a specified location (the Property).

In xx/xxxx, you applied to the relevant authorities to demolish the existing dwelling.

Demolition work was completed in xx/xxxx.

Your intention was to construct a new dwelling to use as your primary place of residence.

Due to family health issues, you have decided to abandon your intention of building a new home and put your efforts into caring for your spouse. As a result of your spouse’s health issues you will also require funds to meet the resultant medical expenses.

Due to these circumstances, you are also unable to obtain sufficient finance to fund the construction of the new dwelling.

You have decided to sell the vacant land.

You have not engaged in similar activities in the past.

Relevant legislative provisions

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

Section 9-5

Subsection 9-20(1)

Subsection 9-20(2)

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 9-5 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.

One of the requirements of a ‘taxable supply’ is that the supply is made in the course or furtherance of an enterprise that you carry on. The term ‘enterprise’ is defined in subsection 9-20(1) to include, 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

However, subsection 9-20(2) provides that an ‘enterprise’ does not include an activity or series of activities done by an individual without a reasonable expectation of profit or gain.

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 provides the Commissioner’s 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 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? 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.

Paragraph 178 of MT 2006/1 states the following:

178. TR 97/11 discusses the main indicators of carrying on a business. Based on that discussion some indicators are:

● 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.

In this case you acquired the Property with the intention to demolish the existing dwelling and construct a new dwelling to use as your principal place of residence. Due to circumstances following the demolition of the existing dwelling you abandoned your plan to build and decided to sell the vacant lot.

Given your situation with reference to the factors listed above, we consider your activities were done without any intention to make a profit or gain. Your activities were entered not for a commercial purpose of generating a profit or gain, but entered into for private purposes. Consequently, your activities do not fall within the scope of an ‘enterprise’ for GST purposes.

As the sale of the Property is not in the course or furtherance of an enterprise, the sale will not satisfy the definition of a taxable supply pursuant to section 9-5.

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.[25] 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.