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Edited version of private advice
Authorisation Number: 1051887428970
Date of advice: 19 August 2021
Ruling
Subject: GST and sale of property
Question
Is the supply by the Owners to the purchaser of the Property a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
No
Section 9-5 of the GST Act provides that you make a taxable supply if:
• you make the supply for consideration;
• the supply is made in the course or furtherance of an enterprise that you carry on,
• the supply is connected with the indirect tax zone (Australia); and
• you are registered or required to be registered for GST.
However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.
In this case, it is accepted that the sale of the Property by the Owners is not a taxable supply as they are not registered or required to be registered for GST. Consequently, the sale is not a taxable supply and is not subject to GST.
Note, 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 Commissioner' view on the meaning of on an enterprise.
MT 2006/1 provides that assets can change their character from investment, which is capital in nature, to trade and therefore revenue in nature (paragraphs 258 to 260). If the activities on an objective assessment have the characteristics of trade, the person's motive is not relevant (paragraph 254). The characteristics of trade are explained in paragraphs 243 to 261 and include the length of period of ownership and the frequency or number of similar transactions. In particular attention is drawn to paragraph 251 of MT 2006/1 which states:
251. The greater the frequency of similar transactions the greater the likelihood of trade.
Relevant facts and circumstances
The Owners acquired Property 1a over XXX years ago. At the time of acquisition this property contained two residential premises, one which was used as the Owners principle place of residence and the other was lease to a tenant as residential premises.
A few years later the Owners acquired the adjoining property (Property 2). This property consisted of a residential premise and upon acquisition the Owners subsequently moved into this property.
Upon moving into their new principle place of residence the Owners commence leasing their former home to a second tenant.
The Owners are proposing to enter a contract of sale with a purchaser under which they will sell the two properties (the Property).
Given the size of the Property, the Owners obtained approval from council to subdivide the Property into several blocks.
The Owners have not commenced any works or development of the Property, however upon sale of the Property the Owners will assign the development consent to the purchaser.
The Owners are not registered for GST.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 Section 9-5