Edited version of private advice

Authorisation Number: 1051856713797

Date of advice: 30 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

This ruling applies for the following periods:

Financial years ending 30 June 20XX and 20XX

Relevant facts and circumstances

You purchased a piece of land in 20XX. This property was at the time a vacant block of land on which you intended to build a residence in which to live.

You engaged a builder in 20XX to construct your future residence

The development was completed in 20XX.

Due to a change in circumstances you decided to sell the completed property.

You are currently registered for GST however, you applied for and Australian Business Number (ABN) and a GST role as requested by your solicitor, but later doubted the necessity of this and requested a private ruling.

You have not lodged any activity statements and have not claimed any input tax credits in relation to any of the costs associated with this property.

The property was sold at auction in 20XX with settlement to occur XX days after contract.

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 the property is located in the indirect tax-zone and the supply will 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 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.

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 purchasing a piece of land and constructing a residence on that property with the intention of living in it 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 land with the intention of building a residence in which you were planning on living. The completed property was going to be 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 20XX and commenced construction in 20XX. A trading asset is generally dealt with within a short period of time after acquisition. The length of time you have held the property 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. This factor is taken into account along with all other factors.

Supplementary work on or in connection with the property realised

You purchased a vacant block of land and developed this block by constructing a residence. 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 purchase of the land and the construction of the residence was done by you with the intension of living in the property. The circumstances behind your decision to sell the property and not live in it 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 was to sell the property as your circumstances changed. Although a profit would have been made, the length of time you held the property and your initial intention in relation to this property was not 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.

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 it is considered that the sale of the property would not constitute an enterprise for GST purposes, you are not required to be registered for GST.

Conclusion

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