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Edited version of your written advice
Authorisation Number: 1051495522063
Date of advice: 19 March 2019
Ruling
Subject: Subdivision and sale of land
Question
Are you making a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax Act) 1999 (GST Act) when you sell your residential property located at X (the Property)?
Answer
No
Relevant facts and circumstances
You are currently not registered for GST.
You are currently not carrying on an enterprise.
You acquired the original property located at V Street in which you lived for a period of time.
While registered for GST, you demolished the house on the Property and subdivided the land into 2 lots and constructed 2 new residential premises. It was your intention at the time to live in one (Front Unit) and rent the other (Rear Unit) out.
You cancelled your GST registration and lived in the Front Unit for almost 12 months when you decided to sell it.
The contract of sale dated X November 20YY is for the sale of X Street.
X Street is the premises known as (the Property) being the Front Unit
You did not claim input tax credits with respect to the Front Unit.
Due to financial circumstances you had to sell the Rear Unit that was supposed to be rented to fund the construction of the Front Unit, which was to be your family home. As you were registered for GST at that time, the rear unit was sold under the margin scheme. The purchaser was the WXY Property Trust (the Purchaser).
You sold the Front Unit to the same Purchaser who had acquired the Rear Unit and settlement occurred on X February 20YY.
As the front Unit had been your principal place of residence, you sent a notification to the Purchaser’s lawyer stating that there is no GST applicable and no GST withholding obligation for the Purchaser.
The Purchaser is insisting that it has a GST withholding obligation. It contends that because the Front Unit is less than 5 years old and that the margin scheme was applied to the sale of the Rear Unit, GST also applies to the sale of the Front Unit.
You are seeking this ruling to clarify whether GST applies to the sale of the Front Unit.
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
Taxation Administration Act 1953, section 14-250 of Schedule 1
Reasons for decision
Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you make a taxable supply if:
(a) you make the supply for consideration;
(b) the supply is made in the course or furtherance of an enterprise that you carry on;
(c) the supply is connected with the indirect tax zone (Australia); 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.
For the supply of your residential property to be a taxable supply, all of the requirements in section 9-5 must be satisfied and it must not be GST free or input taxed.
In your case you have sold your residential property for consideration and the property is connected with Australia as it is located in the indirect tax zone (Australia). Therefore, paragraphs 9-5(a) and 9-5(c) of the GST Act are satisfied. In addition the sale of the residential property is neither GST-free or input taxed.
Accordingly, we must determine whether the sale of your residential property is in the course or furtherance of an enterprise that you carry on.
Subsection 9-20(1) in part defines enterprise as follows:
Based on the facts as presented it is our view that you always intended to build and live in the Front Unit as your principal place of residence. This intention is confirmed by the duration that you have lived in the property and that at the time you were registered for GST, you did not claim input tax credits in relation to the construction costs for the Property.
It is our view that your activities in relation to the sale of the Front Unit are for a private purpose and therefore excluded from the definition of enterprise under s 9-20(2)(b).
Therefore you do not meet all of the elements of section 9-5 and the supply of the Front Unit is not a taxable supply.
As your supply of the Front Unit to the Purchaser will not be a taxable supply there is no obligation for the Purchaser to withhold GST at settlement under section 14-250 of Schedule 1 of the Taxation Administration Act 1953.