Edited version of private advice

Authorisation Number: 1051845088003

Date of advice: 11 June 2021

Ruling

Subject: GST and sale of land

Question

Will the sale of the land be a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

Relevant facts and circumstances

•                    The co-owners are the registered proprietors of the identified vacant land ('the Property'), situated in Australia.

•                    The co-owners purchased the property nearly X decades ago.

•                    The co-owners initially intended to build a residence for their own family. However, for personal reasons, their plan was changed and did not continue.

•                    The co-owners are not registered and have not previously been registered for the goods and services tax (GST) either individually or as a partnership.

•                    The co-owners have never applied for any development application for subdivision or for the building of any type of dwellings on this vacant land.

•                    The co-owners have been keeping this property and have not been carrying on any activity in respect of the land while holding it.

•                    The co-owners have now decided to sell this vacant undeveloped land.

•                    The co-owners have not previously bought or sold any other vacant land, either together or individually.

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, and

A New Tax System (Goods and Services Tax) Act 1999 section 188-25.

Reasons for decision

GST is payable on taxable supplies. You make a taxable supply if you meet the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (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 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 in section 195-1 of the GST Act)

The sale of the property will meet the requirements of paragraphs 9-5(a) and 9-5(c) of the GST Act. This is because the sale will be a supply made for consideration and the land is in Australia.

The co-owners are not registered for GST. We need to determine whether all the other requirements of section 9-5 of the GST Act will be met when they sell the land.

Requirement to be registered for GST

Section 23-5 of the GST Act provides that an entity is required to be registered for GST purposes if both of the following requirements are met:

•         it is carrying on an enterprise; and

•         its GST turnover meets the registration turnover threshold (which is currently $75,000 for entities other than non-profit entities).

Goods and Services Tax Ruling GSTR 2001/7 explains the meaning of GST turnover and the effect of section 188-25 of the GST Act on the calculation of projected GST turnover. GSTR 2001/7 is available on our website at www.ato.gov.au

Enterprise

The term 'carrying on an enterprise' is defined in the GST Act and includes doing anything in the course of the commencement or termination of the enterprise.

Section 9-20 of the GST Act defines 'enterprise' to include, amongst other things, an activity or series of activities done:

•         in the form of a business

•         in the form of an adventure or concern in the nature of trade

•         on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.

The ATO view on the meaning of the term 'enterprise' is explained in detail in 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).

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.

Paragraph 270 of MT 2006/1 states the following regarding land bought with the intention of resale:

Land bought with the intention of resale

270. In isolated transactions, where land is sold that was purchased with the intention of resale at a profit (which would be ordinary income) the Commissioner considers these activities to be an enterprise. This would be so whether the land was sold as it was when it was purchased or whether it was subdivided before sale. An enterprise would be carried on in this situation because the activities are business activities or activities in the conduct of a profit-making undertaking or scheme and therefore an adventure or concern in the nature of trade.

An activity such as selling vacant land by itself may or may not amount to an enterprise. Account should also be taken of the other activities leading up to the sale to determine whether an entity carries on an enterprise.

Paragraph 178 of MT 2006/1 lists a number of indicators to be considered when determining whether an activity or series of activities amount to a business.

It is also relevant to consider the length of time the property had been held and to what purpose it had been put to in that time.

Paragraph 262 of MT 2006/1 acknowledges that the question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions.

In determining whether activities relating to isolated transactions are an enterprise or are the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each particular case.

Paragraphs 264 to 266 of MT 2006/1 discuss judicial decisions that have established a number of factors in determining whether activities are a business or an adventure or concern in the nature of trade with reference to real property transactions.

No single factor will be determinative of whether the activity or activities will constitute either a business or an adventure or concern in the nature of trade.

Whether or not an activity, or series of activities, amounts to an enterprise is a question of fact and degree having regard to all of the circumstances of the case.

On the facts provided, we consider that the sale of the vacant land by the co-owners will not be in the course or furtherance of an enterprise that they carry on. Therefore, the requirement of paragraph 9-5(b) of the GST Act will not be met.

As not all of the requirements of a taxable supply under section 9-5 of the GST Act will be met at the time of sale, the sale will not be a taxable supply. Consequently, GST will not be payable on the sale of the property that the co-owners have previously bought to build their residence.