Edited version of private advice

Authorisation Number: 1051649113989

Date of advice: 23 March 2020

Ruling

Subject: Requirement to be registered for GST

Question 1

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

Answer

No, you are not carrying on an enterprise for the purposes of GST and therefore are not required to be register for GST.

Relevant facts and circumstances

·        You are individuals who do not have an Australian Business Number (ABN) and are not registered for GST.

·        You purchased a property and the property is xxxm2.

·        This property has been your primary place of residence since purchase.

·        You sought and obtained approval to subdivide the property into 2 lots. Lot 1 will be vacant land and your existing residence will remain as your primary residence on lot 2.

·        You propose to sell lot 1 to a builder under a put and call option agreement which will allow the builder to commence construction on lot 1 before title has been obtained. You would not have a right to any payments other than the $XXX being received for lot 1.

·        You expect to incur some costs in relation to the subdivision, title transfer and legal costs in relation to the selling of Lot 1.

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

Summary

You are not carrying on an enterprise and as a consequence are not required to be registered for GST.

Detailed reasoning

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), an entity makes a 'taxable supply' where the supply:

1.     is made for consideration; and

2.     is made in the 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 lot 1 was 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 of the GST Act and would be a taxable supply.

You currently don't have an ABN, nor do you intend to register prior to or at settlement date of the property sale.

Are you carrying on an enterprise?

The term enterprise is defined for GST purposes in section 9-20 of the GST Act 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 ABN.

Goods and Services Tax Determination GSTD 2006/6 Goods and Services Tax: 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 the 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 will be profitable;

·        the recurrent or regular nature of the activity;

·        the activity is systematic, organised and carried on in a business-like manner and records 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 potential activity you have proposed to undertake in subdividing the property, applying for a separate title and selling the vacant land via the put and call option agreement does not display the indicators of a 'business' as listed above.

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 for personal enjoyment.

While an activity such as the selling 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 or would be being carried on.

You originally purchased the property in yyyy which included a residential premises with the intention of this being your primary residence. The subsequent decision to subdivide the property in yyyy was not conducted in a business-like manner as there was no business plan. The property was not bought into account as a 'business' asset and expenses have not been claimed as business expenses.

You will not be in control of the construction of the residence on lot 1. You will merely, on settlement receive $xxxx from the purchaser. You are not required to take out any insurance in relation to the newly constructed property.

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 proposed sale of lot 1 would be considered a mere realisation of a capital asset.

GST registration

Section 23-5 of the GST Act provides that you are required to be registered for GST if you carry on an enterprise and your GST turnover meets the registration turnover threshold (currently $75,000).

As discussed, it is considered that the sale of lot 1 would be a mere realisation of a capital asset and would not constitute an enterprise for GST purposes. As such you are not required to be registered for GST.

Conclusion

Your activity of subdividing the property into 2 lots will not be done in the furtherance of an enterprise. You are not required to register for GST. As such the proposed sale of lot 1 will not be a taxable supply and you will not be liable for GST on the sale in accordance with section 9-40 of the GST Act.