Edited version of private advice

Authorisation Number: 1051843360171

Date of advice: 27 May 2021

Ruling

Subject: GST and sale of vacant land

Question

Is the sale of the vacant land located in Australia (the property) by the company subject to GST?

Answer

No. The sale of the property is not a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax Act) 1999 and thus, is not subject to GST.

You will need to notify the purchaser in writing that they do not have a withholding obligation and do not need to pay a withholding amount from the contract price of the property to the Australian Taxation Office (ATO) when purchasing the property. This can be included in the sale contract or in a separate document prior to settlement.

This ruling applies for the following period:

1 July 2020 - 31 August 2021

Relevant facts and circumstances

The company is a non-trading company. It does not have an Australian business number (ABN) or a tax file number (TFN).

The company was formed by two individuals (the directors) to acquire and hold a property located in Australia (the property) which contained an old house. The property was purchased for the purpose of building two houses on the land for their families to live in or to rent out, depending on the family situation at the time.

The property was purchased XXXX under a contract that was settled in XXXX.

The directors had a disagreement and decided to terminate their plan, sell the property and close the company.

Since the acquisition of the property, no further works have been carried out except demolishing the old house.

The property was sold in late XXXX. The settlement date is mid-XXXX.

The property was sold for much less than the purchase price.

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 23-5

Reasons for decision

Summary

The sale of the property is not made in the course or furtherance of an enterprise that the company is carrying on and the company is not required to register for GST; therefore, the company does not satisfy all the requirements of section 9-5 of the GST Act. Accordingly, the sale of the property by the company is not a taxable supply; and thus, is not subject to GST.

Detailed reasoning

GST is payable on a taxable supply.

Section 9-5 of the GST Act 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 the indirect tax zone; 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 under section 195-1 of the GST Act)

The sale of the property is made for consideration and is connected with Australia as the property is situated in Australia. The requirements in paragraphs 9-5(a) and 9-5(c) above are satisfied.

What remains to be determined is whether the sale of the property is made in the course or furtherance of an enterprise that the company carries on [paragraph 9-5(b)] and whether the company is required to be registered when it sold the property [paragraph 9-5(d)].

Paragraph 9-5(b)

For the purposes of paragraph 9-5(b) of the GST Act, an 'enterprise' is defined in section 9-20 to include amongst others 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.

The issue to be decided is whether the activities that the company carried on that led to the sale of the property are considered to be activities of carrying on a business or an adventure of concern in the nature of trade as opposed to the mere realisation of a capital asset.

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 Numberprovides the ATO view on the meaning of enterprise for the purposes of entitlement to an Australian Business Number. Goods and Services Tax Determination GSTD 2006/6 Goods and services tax: does 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 equally applies to the term 'enterprise' as used in the GST Act and can be relied on for GST purposes.

According to paragraph 264 of MT 2006/1, the cases of Statham & Anor v. Federal Commissioner of Taxation 105 (Statham) and Casimaty v. FC of T 106(Casimaty) provide some guidance on when activities to subdivide land amount to a business or a profit-making undertaking or scheme. In these cases, farmland was subdivided and sold. Minimal development work was undertaken to meet council requirements and to improve the presentation of certain allotments. On the particular facts of these cases the courts held that the sales were a mere realisation of a capital asset.

From the Statham and Casimaty cases a list of factors can be ascertained that provides assistance in determining whether activities are a business or an adventure or concern in the nature of trade. If several of these factors are present it may be an indication that a business or an adventure or concern in the nature of trade is being carried on. These factors are as follows:

• there is a change of purpose for which the land is held;
• additional land is acquired to be added to the original parcel of land;
• the parcel of land is brought into account as a business asset;
• there is coherent plan for the subdivision of the land;
• there is a business organisation - for example a manager, office and letterhead;
• borrowed funds financed the acquisition or subdivision;
• interest on money borrowed to defray subdivisional costs was claimed as a business expense;
• there is a level of development of the land beyond that necessary to secure council approval for the subdivision; and
• buildings have been erected on the land.

While it is necessary to consider the factors in examining the facts and circumstances of each particular case, there may also be other relevant factors that need to be weighed up. No single factor will be determinative rather it will be combination of factors that will lead to a conclusion as to the character of the activities.

The company acquired the property primarily for the directors to build their family homes. However, after demolishing the old house which was on the property, the directors had a disagreement and decided to terminate their plan, sell the property and close the company. There was no further work done on the property. The property was sold for much less than the purchase cost.

Based on the information provided, we consider that the activities that led to the sale of the property do not amount to a business or an adventure or concern in the nature of trade; thus, the company is not carrying on an enterprise as defined in section 9-20 of the GST Act. Accordingly, the sale of the property is not made in the course of an enterprise that the company carries on. The requirement in paragraph 9-5(b) is not satisfied.

Paragraph 9-5(d)

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 meets the registration turnover threshold.

Currently, the registration turnover threshold is $75,000 ($150,000 for a non-profit body).

As we determined above that the company is not carrying on an enterprise; the company is not required to register for GST under section 23-5 of the GST Act when it sold the property. Therefore, paragraph 9-5(d) is not satisfied.

As the company does not satisfy all the requirements in 9-5 of the GST Act, the sale of the property is not a taxable supply. Accordingly, the sale of the property by the company is not subject to GST.