Edited version of private advice

Authorisation Number: 1051652508710

Date of advice: 08 April 2020

Ruling

Subject:GST and sale of real property

Question

Is GST payable on the sale of the Australian Property?

Answer

No. The sale is outside the scope of GST as you are not carrying on an enterprise when selling the Australian Property and you are not required to register for GST when making the sale.

Relevant facts

You are the joint owners of the Australian Property.

The Property was purchased in Year A with settlement on the same year. At the time of purchase there were existing walls on the boundary constituting a shed and office rooms/bedrooms.

A home loan for a certain sum for a term of several months was secured for the purchase of residential land and construction of owner occupier dwelling.

In addition to the home loan, funds were borrowed from relatives.

You initially purchased the Property with existing plans to build a house using the existing boundary walls. However, you decided to redesign and build a new family home where you would live for many years.

You provided the timeline of the development of the land. The planning application was made in Year B and the planning permit issued in Year C.

The Building Permit was for the demolition of a shed and the construction of a single dwelling and garage.

You engaged other entities to effect the development of the land.

The building contract was for a certain amount. This figure is reflected in the cost of your contribution to the home loan. Additional funds due to unexpected costs were funded through line of credit with a bank.

The Occupancy Permit was issued late Year D.

Due to limited funds, you moved into the premises in late Year D, prior to the issue of the Occupancy Permit.

The Property or any part of it was never used for income producing purposes since its acquisition. The demolition or construction costs were not claimed as income tax deductions. Interest on loans was not claimed as income tax deduction.

You have recently decided to sell the Property due to financial constraints and a relationship breakdown.

Property contains a house with several bedrooms and the expected sale price is over $75,000.

You do not carry on any enterprise and are not registered for GST for any enterprise.

You have not previously built a residence and changed your intention in relation to that residence. You have not undertaken any activities of a similar nature (buying land, constructing premises and then selling the property) in the past. You have no immediate plants to undertake any similar activities in the future.

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 making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you sell the Property because, although the sale of the Property is for consideration and connected with the indirect tax zone (Australia):

• the sale is a mere realisation of a private asset and hence, is not made in the course or furtherance of an enterprise that you carry on, and
• you are neither registered nor required to be registered for GST.

Consequently, GST is not payable on the sale.

Detailed reasoning

GST is payable on any taxable supply that you make.

The sale of the Property is a taxable supply if the supply satisfies all the requirements of section 9-5 of the GST Act, which states:

You make a taxable supply if:

(a) you make the supply for ^*consideration; and

(b) the supply is made in the course or furtherance of an ^*enterprise that you ^*carry on; and

(c) the supply is ^*connected with Australia; and

(d) you are ^*registered, or ^*required to be registered.

However, the supply is not a ^*taxable supply to the extent that it is ^*GST-free or

^*input taxed.

(*denotes a term defined in the GST Act.)

Based on the information that you provided, the proposed sale of the Property is for consideration and is connected with Australia as the property is located in Australia. Therefore, the supply satisfies paragraphs 9-5(a) and 9-5(c) of the GST Act.

It remains to be determined whether the sale of the property is made in the course or furtherance of an enterprise that you carry on under paragraph 9-5(b) of the GST Act, whether you are required to be registered for GST under paragraph 9-5(d) of the GST Act, and whether the sale is GST-free or input taxed.

Paragraph 9-5(b) of the GST Act

Section 9-20 of the GST Act provides that enterprise includes, among other things, an activity or series of activities done:

·          in the form of a business, or

·          in the form of an adventure or concern in the nature of trade.

Miscellaneous Taxation Ruling MT 2006/1 provides the view of the ATO on the meaning of enterprise for the purposes of entitlement to an Australian Business Number. Goods and Services Tax Determination GSTD 2006/6 provides that the discussion in MT 2006/1 equally applies to the term 'enterprise' as used in the GST Act and can be relied on for GST purposes.

MT 2006/1 provides that ordinarily, the term business would encompass trade engaged in, on a regular or continuous basis, while an adventure or concern in the nature of trade may be an isolated or one-off commercial activity that does not amount to a business but which has the characteristics of a business deal. However, the mere realisation of investment or private assets does not amount to trade. Additionally, the fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature.

Paragraphs 258 to 260 of MT 2006/1 provide that certain type of assets, such as rental properties, business plant and machinery, the family home, family cars and other assets are considered as investment assets. These assets are purchased with the intention of being held for a reasonable period of time, as income-producing assets or for the pleasure or enjoyment of the person. The mere disposal of these investment and private assets does not amount to trade. Assets can change their character from investment to trade, however these assets cannot be held at the same time for both purposes.

From the information given you purchased the property for your private use. You built new residential premises and moved into the premises prior to the issue of the Occupancy Permit. The Occupancy Permit was issued in late Year D. Due to financial constraints and a relationship breakdown you have decided to sell the residential property.

Considering all the facts and circumstances in your case, the development and sale of the Property is the mere realization of a private asset. Hence, it is not in the form of an adventure or concern in the nature of trade. Further your activities are not those of an entity carrying on a business of developing land. Accordingly, the sale of the Property is not made in the course or furtherance of an enterprise that you carry on and the requirement of paragraph 9-5(b) of the GST Act is not satisfied.

Although it is not necessary to consider whether you satisfy the condition at paragraph 9-5(d) of the GST Act, for completeness, we discuss the requirements.

Paragraph 9-5(d) of the GST Act

You are not registered for GST.

Section 23-5 of the GST Act provides that you are required to be registered if:

(a)  you are carrying on an enterprise and

(b)  your GST turnover is $75,000 or more.

As outlined above, you are not carrying on an enterprise as the activities you have undertaken in developing and selling the Property amount to the mere realisation of a private asset. Hence, the requirement of paragraph 23-5(a) of the GST Act is not satisfied. Therefore, as not all the requirements in section 23-5 of the GST Act are satisfied, you are not required to be registered for GST and the requirement of paragraph 9-5(d) of the GST Act is not satisfied.

Therefore, as you do not satisfy all the requirements of section 9-5 of the GST Act, the sale of the Property is not a taxable supply. Hence, GST is not payable on the sale.

Additional information

A vendor of residential premises and potential residential land must give a written notice to the purchaser before making the supply. The notice must state whether the purchaser has a GST withholding obligation in relation to the supply.

This requirement applies to all vendors of residential premises and potential residential land, not only those who are registered or required to be registered for GST.

For further information, refer to our website www.ato.gov.au and search GST at settlement.