Edited version of private advice

Authorisation Number: 1051851938870

Date of advice: 16 June 2021

Ruling

Subject: Requirement to be registered for GST

Question

Are you carrying on an enterprise for the purposes of GST and therefore required to be registered for GST?

Answer

No, you are not carrying on an enterprise for the purposes of GST and therefore are not required to be registered for GST.

Relevant facts and circumstances

•                    You are individuals who do not have an Australian Business Number (ABN) and are not registered for GST.

•                    You purchased the property which was your primary place of residence since purchase.

•                    You sought and obtained approval to subdivide the property into two lots and the residence was demolished.

•                    Both lots are under contract to be sold as vacant land.

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 supply of these two lots consists of property located in the indirect tax-zone and the supplies will be made for consideration. Therefore, the sale of the properties would satisfy two elements outlined above (1&3). Accordingly, we need to determine whether the other two elements (2&4) would be satisfied. If this were the case, the supply of the two properties would satisfy all requirements of section 9-5 of the GST Act and would be a taxable supply.

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 ATO 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 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 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 out in a business-like manner and records kept;

•                    a business of product; and

•                    the entity has relevant knowledge and 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 activity you have undertaken in demolishing your primary residence, subdividing the property into two lots, getting separate titles for the lots and selling the lots, does not display the indicators of a 'business' as listed above.

Paragraph 245 of MT 2006/1 refers to 'the badges of trade' while paragraphs 247 to 257 consider the six badges of trade being:

•                    The subject matter of realisation

•                    The length of period of ownership

•                    The frequency or number of similar transactions

•                    Supplementary work on or in connection with the property realised

•                    The circumstances that were responsible for the realisation; and

•                    Motive.

The subject matter of realisation

You acquired the property with the intention of residing in it as your primary place of residence. This shows that the purchase was for personal enjoyment and not investment purposes.

The length of time pf ownership

You acquired the property in XXX and resided in the property until XXXX when it was demolished. A trading asset is generally dealt with within a short period of time after acquisition. Your occupation of the property and the length of time it took to decide on how the property would be sold shows that this asset was not a trading asset.

The frequency of period of ownership

You have not previously undertaken a development of this nature.

Supplementary work on or in connection with the property realised

You consulted a real estate agent to determine the best way to market the property and, after trying several times to sell the property without doing any supplementary work, the decision was made to demolish the residence and sell the vacant lots. This could be seen as an element of trade; however, all other aspects of the transaction need to be considered.

The circumstances that were responsible for the realisation

The demolition of the residence and the subdivision into two lots were done due to you being unable to sell the property in its original form. The circumstances behind this decision and the length of time you held this property does not indicate it to be commercial in nature.

Motive

Your motive in relation to selling this property (your primary residence) was to sell the property either in its original condition or as two lots based on the advice given to you by your estate agent. Although a profit was considered at each stage of the process, the length of time you held the property and your attempt to sell the property in various forms did not show that your initial intention in relation to this property was a profit making one.

Given the above, we do not consider your activities to constitute an adventure or concern in the nature of trade and, as such, you are not carrying on an 'enterprise' for the purposes of GST. Therefore, the sale of the two lots would not be a taxable supply.

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 sales of the two lots would not constitute an enterprise for GST purposes. As such you are not required to be registered for GST.

Conclusion

Your activity of subdividing the property into two lots was not done in the furtherance of an enterprise. You are not required to be registered for GST. As such the sale of the two lots will not be taxable supplies and you will not be liable for GST on the sales in accordance with section 9-40 of the GST Act.