Edited version of private advice

Authorisation Number: 1051786164484

Date of advice: 04 December 2020

Ruling

Subject: GST taxable supply

Question

Will the sale of the property be a taxable supply under section 9-5 of the GST Act?

Answer

No

This ruling applies for the financial year ending 30 June 2021.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

•   You currently have an Australian Business Number (ABN) but are not currently registered for goods and services tax (GST).

•   You inherited a property with a shed being the only structure situated on it.

•   The land has never been leased to a third party.

•   A contract of sale was signed on XX/XX/XXXX for the property to be sold for $$$$$

•   The contract is between you and a property developer.

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 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.

The sale of the property will 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 have an ABN but you are not registered for GST, nor do you intend to re-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 (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 sale of the pending 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 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 inherited the property in XXXX. You have never leased out the property and have occasionally used the existing shed to store equipment from time to time. You have had an offer from a developer to purchase the property, which you have accepted subject to you getting a private ruling from the ATO as to the status of the sale.

The property was not bought into account as a 'business' asset and expenses has not been claimed as business expenses.

Given the above, we do not consider your activity of selling the property 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 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 for GST.

Conclusion

Your activity of selling the property will not be done in the furtherance of an enterprise. You are not required to register for GST.

Therefore, the pending sale will not be a taxable supply for the purposes of section 9-5 of the GST Act and you will not be liable for GST on the sale in accordance with section 9-40 of the GST Act.

Further information

This additional information does not form part of the ruling, however, is provided to you to assist you in meeting your obligations as the seller of a property.

As a seller (vendor) of a property you have a requirement to notify the purchaser in relation to whether there is a requirement for them to withhold and amount of GST under the GST withholding provisions in accordance with section 14-250 of the Taxation Administration Act 1953.

REIQ contracts have been updated to include a section in relation to the withholding provisions. When this is completed this satisfies the notification to the purchaser.

However, the vendor can also notify the purchaser in writing that they are not registered for GST, not carrying on an enterprise to which the sale of the property relates and there is not GST withholding obligations.

If this notification is not provided the purchaser may withhold GST on the sale and send this to the ATO.

More information is available on the ATO web site at www.ato.gov.au. Search for QC 56252 with particular reference to page 2 (Determine if you are running and enterprise) and page 4 (What to include in a seller notification)