Edited version of your written advice

Authorisation Number: 1051522288998

Date of advice: 24 May 2019

Ruling

Subject: The sale of the property is not a taxable supply and the margin scheme cannot be applied to the sale

Question 1

Is the sale of the Property you made a taxable supply?

Answer

No, the sale of the Property is not a taxable supply.

Question 2

If the sale is taxable, can the margin scheme be applied?

Answer

No, since the sale is not taxable, the margin scheme cannot be applied.

This ruling applies for the following period:

from May 2019

Relevant facts and circumstances

You are not currently registered for GST and have no intention of carrying on an enterprise. The sale of the property is a one off transaction.

You inherited a partly constructed house. You are not (and do not intend to be) registered for GST. You do not intend to engage in any enterprise or business activity. The sale of this property is one off transaction.

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 paragraph 9-5(b)

A New Tax System (Goods and Services Tax) Act 1999 section 9-20

A New Tax System (Goods and Services Tax) Act 1999 section 23-5

A New Tax System (Goods and Services Tax) Act 1999 sub-paragraph 75-5(1)(a).

Reasons for decision

Taxable supply

In order for a supply to be taxable it must satisfy all of the requirements of section 9-5 of the GST Act. Relevantly in your circumstances the supply must be made in the course or furtherance of an enterprise that you carry on [paragraph 9-5 (b) of the GST Act].

Enterprise

Section 9-20 of the GST Act defines the term ‘enterprise’ widely to include an activity or series of activities done:

(a) in the form of a business; or

(b) in the form of an adventure or concern in the nature of trade.

The Commissioner’s views on the meaning of entity carrying on an enterprise for the purpose of entitlement to an Australian Business Number are expressed in Miscellaneous Taxation Ruling MT 2006/1. The views in MT 2006/1 equally apply to GST (per Goods and Services Tax Determination GSTD 2006/6).

In the form of business

The phrase 'in the form of a business' is broad and has as its foundation the longstanding concept of a business. The definition clearly includes a business and the use of the phrase 'in the form of' indicates a wider meaning than the word 'business' on its own. (paragraphs 170 and 170B of MT 2006/1)

As the definition of ‘business’ in the GST Act is the same as the definition of 'business' in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) and section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997), it can be interpreted similarly to income tax. The meaning of business is considered in Taxation Ruling TR 97/11, and although it deals with carrying on a primary production business, the principles discussed in that Ruling apply to any business. (paragraphs 174 to 176 of MT 2006/1)

To determine whether an activity, or series of activities, amounts to a business, the activity needs to be considered against the indicators of a business established by case law. 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.

There is no single test to determine whether a business is being carried on. TR 97/11 states at paragraph 12 that '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'. (paragraphs 177 to 179 of MT 2006/1)

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

There is no definition of 'in the form of an adventure or concern in the nature of trade' in the GST Act.

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.

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. Such transactions are of a revenue nature.

Application of the law and ATO view to your case

In your circumstances you are not carrying on an enterprise as the activities you described are not in the form of business or adventure or concern in the nature of trade. Your activities do not have a commercial purpose and are not done in a business-like manner. You are not registered for GST (and do not intend to be registered) and you do not have an intention to make a profit from your activity. It is merely an arrangement brought about by the death of your spouse.

Since you are not carrying on an enterprise, you are not required to be registered for GST and the sale of the property will not be a taxable supply. In addition the margin scheme cannot be applied to a supply which is not a taxable supply (sub-paragraph 75-5(1)(a) of the GST Act).