Edited version of private advice

Authorisation Number: 1051875429229

Date of advice: 27 July 2021

Ruling

Subject: GST and sale of family home

Question

Will the vendors be carrying on an enterprise when they sell their residential property that is located in Australia (Property) under section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

An enterprise is defined in section 9-20 of the GST Act as an activity or series of activities done in a certain manner or by certain entities and this includes an adventure or concern in the nature of trade

According to paragraph 244 in Miscellaneous Tax Ruling MT 2006/1: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business number, an adventure or concern in the nature of trade includes a commercial activity that does not amount to a business, but which has the characteristics of a business deal. Such transactions are of a revenue nature. However, the sale of the family home, car and other private assets are not, in the absence of other factors, adventures or concerns in the nature of trade. The fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature.

Paragraph 247 in MT 2006/1 further states that if the property provides either an income or personal enjoyment to the owner it is more likely to be an investment than a trading asset. Paragraph 259 in MT states that the mere disposal of investment assets does not amount to trade and provides examples of investment assets which include rental properties, business plant and machinery, family home, family cars and other private assets.

The Property that the vendors will sell is their family home. Accordingly, the sale of the Property will be a sale of a private asset; thus, the vendors will not be carrying on an enterprise in an adventure or concern in the nature of trade under section 9-20 of the GST Act when selling the Property. In this instance the sale of the family home will be outside the scope of the GST law and therefore not subject to GST.

The vendors will need to notify the purchaser in writing that they do not have a withholding obligation and they 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

Relevant facts

The vendors are not registered for GST

The vendors purchased a vacant land in 19XX (Property) with the intention of eventually building a main residence on the Property and residing on the Property. Their objective was to live on rural land, secluded from a metropolitan lifestyle, but close to amenities and their ageing parents.

They always intended to build their main residence on the Property as their financial position and life circumstances allowed. Up until 20XX, they were not able to build the main residence as they were constrained by either money or time They had a house built on that land in 20XX and since then they used this house as their primary residence.

The vendors as individuals took out a personal mortgage loan to purchase the Property and the loan repayments were made from your personal bank accounts. The loan was for private purposes and most of the funds borrowed were used to construct their main residence as the purchase price for the land was modest. The loan has not been used for business purposes.

The vendors now intend to sell the property to an unrelated third-party buyer. They decide to sell because of the ongoing development in the surrounding area, which meant that your desire to maintain a secluded lifestyle cannot be maintained at the Property.

They will move to another house which they jointly own and currently not being used for anything after the sale of the Property. This will be their new main residence as this property is more secluded and will allow them to maintain the lifestyle they enjoy.