Edited version of your written advice

Authorisation Number: 1051458732363

Date of advice: 23 November 2018

Ruling

Subject: Carrying on an enterprise and the requirement to register for GST

Question

Are you carrying on an enterprise for the purposes of GST and as a consequence required to be registered for GST?

Answer

No

The scheme commences in: May 20XX

Relevant facts and circumstances

You are an individual.

You inherited a parcel of land.

You attempted to sell the parcel of land as a whole but were unsuccessful.

You have been slowly subdividing the land into XX lots over a long period of time.

You have never claimed input tax credits.

Three lots remain unsold.

You have reported the disposals of the lots as capital when lodging your income tax returns.

As a result of Treasury Laws Amendment (2018 Measures No.1) Act 2018 (No 12, 2018) –Schedule 5 (Payment of GST on taxable supplies of certain real property) (which came into effect on 1 July 2018) the purchaser’s solicitor, on the contract currently before you is requesting written proof that you are not carrying on an enterprise.

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

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

Detailed reasoning

All legislative references below are to A New Tax System (Goods and Services Tax) Act 1999.

Under section 9-5, an entity makes a ‘taxable supply’ where the supply:

● is made for consideration; and

● is made in the course or furtherance of an enterprise that you carry on; and

● is connected with the indirect tax zone; and

● is made by a supplier who is registered, or required to be registered, for GST.

The supplies consist of properties which are located in Australia and the supplies will be made for consideration. Therefore, the sale of the properties will satisfy two elements outlined above (1&3). Accordingly, we need to determine whether the other two elements (2&4) are also satisfied. If this were the case, the supply of the properties would satisfy all requirements of section 9-5 and would be a taxable supply.

You are not currently registered for GST, nor do you intend to register for GST prior to or at settlement date of any property.

Are you carrying on an enterprise?

The term enterprises is defined for GST purposes in section 9-20 and includes, among other things, an activity or series of activities done:

● In the form of a business (paragraph 9-20(1)(a) or

● In the form of an adventure or concern in the nature of trade (paragraph 9-20(1)(b)).

The phase ‘carry on’ in the context of an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

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 (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 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 applies equally 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 179 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 97/11 Income tax: am I carrying on a business of primary production?, lists indicators of carrying on a business.

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 in your case

Given the facts of this case, we consider that the activities undertaken are not in the nature of the indicators of a ‘business’.

Paragraph 244 of MT 2006/1 explains that an adventure or concern in the nature of trade includes a commercial activity that does not amount to a business but which has the characteristics of a business deal.

Paragraph 245 of MT 2006/1 refers to ‘the badges of trade’ with paragraphs 247 to 257 discussing the various ‘badges of trade’ that may be taken into account when determining whether assets have the characteristics of ‘trade’ and held for income producing purposes, or held as an investment asset or for personal enjoyment.

While an activity such as the selling of an asset may not of itself amount to an enterprise, account should be taken of the other activities leading up to the sale to determine if an enterprise is carried on.

Application to your situation

You originally attempted to sell the inherited land as a whole but were unable. You then sold the land by subdivision undertaken over a long period of time with the occasional subdivided lot being sold.

The subdivision of the inherited land was not conducted in a business-like manner as there was no business organisation; the vacant land was not bought into account as a ‘business’ asset and expenses related to the subdivision and subsequent sales were not claimed as a business expense.

We do not consider your activities constitute an adventure or concern in the nature of trade and as such an ‘enterprise’ for the purposes of GST. Therefore the subdivision and sales of the vacant subdivided lots are considered to be the mere realisation of a capital asset.

Conclusion

Section 23-5 provides that you are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold (currently $75,000), and it is considered that the sale of the vacant lots does not constitute an ‘enterprise’ for GST purposes. Consequently you are not required to be registered for GST.