Edited version of your written advice

Authorisation Number: 1051474247469

Date of advice: 17 January 2019

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

This ruling applies for the following periods:

1/12/2018 to 1/12/2019

Relevant facts and circumstances

● You are an individual.

● You are not registered for GST

● You purchased a residential block of land intending to build a house to live in.

● You have never claimed input tax credits.

● The block of land remained vacant until 2015.

● The house was completed in 2018.

● You requested confirmation from the ATO that you are not required to be registered for GST and that you are not carrying on an enterprise

● You do not intend to register for GST prior to or at settlement date of the property.

.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

Reasons for decision

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:

1. is made for consideration; and

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

3. is connected with the indirect tax zone; and

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

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

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

Are you carrying on an enterprise?

The term enterprise 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 phrase ‘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:

● a significant commercial activity;

● an 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 systematic, organised and carried on in a businesslike manner and records are kept;

● the activities are of a reasonable size and scale;

● a business 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 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 are held for income producing purposes, or either as an investment asset or for personal enjoyment.

While an activity such as the selling of an asset may 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 being carried on.

You originally purchased the land and engaged a builder to build a house in which you intended to reside.

The purchase of the land and the subsequent building of the residential property was not conducted in a business-like manner as there was no business organisation; the vacant land was not brought into account as a ‘business’ asset and expenses related to the construction of the residence were not claimed as a business expense.

Given the above, we do not consider your activities to constitute an adventure or concern in the nature of trade and as such are not an ‘enterprise’ for the purposes of GST. Therefore the sale of the completed property would be 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). It is considered that your sale of the property does not constitute an ‘enterprise’ for GST purposes. Consequently you are not required to be registered for GST.