Edited version of private advice

Authorisation Number: 1051651517455

Date of advice: 30 March 2020

Ruling

Subject: Is the sale of a property a taxable supply

Question

Is the sale of the property a taxable supply?

Answer

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

Relevant facts and circumstances

·   The entity has an Australian Business Number (ABN) but is not registered for goods and services tax (GST).

·   The property was originally part of a larger parcel of land

·   The property was originally part of a larger parcel of land,.

·   Subdivision into 2 blocks occurred on or about 2xxx.

·   The larger block was transferred to the entity in 2xxx.

·   The property is currently being used for farming.

·   No income has been earned from the property.

·   There are currently no development plans or change of zoning applications before the council.

·   The entity is proposing to sell the property as a whole

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

Under section 9-5 of the A New Taxa 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 the property was to be sold, the supply would consist of a property which is located in indirect tax zone and the supply would be 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.

The entity currently has an ABN, however, the does not intend to register for GST 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 9paragraph 9-20(1)(a)) or

·   in the form of an adventure or concern in the nature of trade (paragraph (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 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 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;

·   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 record 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 the entity has proposed to undertake, being the sale of the property, 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 characteristics of 'trade' and are held for income producing purposes, or either as an investment asset for personal enjoyment.

While an activity of 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.

The Property was transferred to the entity in 2xxx, and during this time it has not been used for income producing activities. The property was not bought into account as a 'business' asset and expenses have not been claimed as business expenses.

Given the above, we do not consider the activity of selling the property to constitute an adventure or concern in the nature of trade and as such not an 'enterprise' for the purposes of GST. Therefore the proposed sale of the property 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 the property 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.

Conclusion

The activity of selling the property will not be in the furtherance of an enterprise. The entity is not required to register for GST. As such the proposed sale of the property will not be a taxable supply and the entity will not be liable for GST on the sale in accordance with section 9-40 of the GST Act.