Edited version of private advice

Authorisation Number: 1051900715452

Date of advice: 30 September 2021

Ruling

Subject: GST and sale of vacant land

Question 1

Will the Vendor be required to be registered for goods and services tax (GST) under section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when the vendor sells the vacant land situated in Australia (the Property)?

Answer

No. The Vendor will not be required to be registered for GST when the Vendor sells the Property.

Question 2

Will the sale of the Property to the Purchaser be subject to GST?

Answer

No. The sale of the Property will not be subject to GST as the sale will not be a taxable supply under section 9-5 of the GST Act.

The Vendor will need to notify the Purchaser in writing that the Purchaser does not have a withholding obligation and does 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.

Question 3

Will the sale of the Property be a GST-free supply of a farmland under section 38-480 of the GST Act?

Answer

As advised, the answer to this question is no longer necessary if the answer to Question 2 is 'No'.

Relevant facts and circumstances

The Vendor inherited a vacant land (the Property) from the Vendor's parent in 20XX. The property was acquired by the parent in the 19XXs.

The Property is located in Australia.

The Property is x hectares in size. There are no services to the Property. A residential property would be permitted to be built subject to council and planning compliance.

The Vendor is not carrying on an enterprise or conducting business operations on the Property.

The Property is not leased. The Vendor allows a Farmer to let his beef cattle on the Property to keep grass down and to minimise fire risk but does not get any financial gain from doing it. The Farmer's cattle have been allowed on the Property in all the time the Vendor held the Property since the parent's death. Likewise, the cattle grazed on the Property during the ownership of the parent. The fence between the Property and the Farmer's property has been in disrepair for many years. Allowing the cattle access to the Property aids in bushfire management.

The Farmer has been carrying on a farming business for over XX years on the own land that is adjacent to the Property.

There is a potential purchaser of the Property. It is anticipated that should the Purchaser buys the Property the Farmer will continue farming the Property. There is no familial relationship between the Vendor and the Purchaser or the Farmer.

The Vendor has an Australian Business Number but is not registered for GST. The Vendor obtained her ABN as the Vendor was looking at becoming involved in a wellness business; however the business was never purchased by the Vendor and the Vendor never traded in anyway whatsoever.

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

A New Tax System (Goods and Services Tax) Act 1999 section 38-480

Reasons for decision

Question 1

Section 23-5 of the GST Act provides that an entity is required to register for GST if:

a. the entity is carrying on an enterprise; and

b. the entity's GST turnover meets the registration turnover threshold.

Currently, the registration turnover threshold is $75,000 ($150,000 for non-profit entities)

Paragraph 23-5(a)

An enterprise is defined in section 9-20 of the GST Act to include an activity or series of activities done:

•         in the form of a business; or

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

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

Miscellaneous Taxation Ruling MT 2006/1 considers the meaning of the term 'enterprise' for the purposes of the A New Tax System (Australian Business Number) Act 1999. Goods and Services Tax Determination GSTD 2006/6 provides that the principles in MT2006/1 apply equally to the term 'enterprise' and can be relied upon for GST purposes.

According to paragraph 178 of MT 2006/1, Taxation Ruling TR 97/11 discusses the main indicators of carrying on a business. None of the indicators are present in regard to the Vendor allowing the Farmer's cattle to graze in the Property. The Vendor is not getting any financial gain in doing this. The Vendor's purpose is to maintain the grass down and minimise fire risk. The Vendor is not conducting a farming business merely by giving the Farmer's cattle access to the Property.

Paragraph 244 of MT 2006/1 provides that 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 Property was not an asset of a business carried on by the Vendor. The Vendor inherited the Property from the parent and has not done anything with it apart from letting the Farmer's cattle on it. The sale will be a sale of a private asset; thus, the sale will not be an adventure or concern in the nature of trade.

The Vendor does not supply interest in the Property in the form of a lease for the vendor to be considered carrying on a leasing enterprise.

We consider that any activity that the Vendor has done leading to the sale of the Property will not constitute carrying on an enterprise.

As the Vendor is not carrying on any enterprise, paragraph 23-5(a) of the GST Act will not be satisfied. Therefore, the Vendor will not be required to be registered when the Vendor sells the Property to the Purchaser.

Question 2

GST is payable on a taxable supply.

Section 9-5 of the GST Act 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 the 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 under section 195-1 of the GST Act)

The sale of the Property will be made for consideration. The sale will be connected with Australia as the Property is situated in Australia. The requirements in paragraphs 9-5(a) and 9-5(c) of the GST Act above will be satisfied.

As advised in the response to Question 1, the Vendor is not carrying on an enterprise; therefore, the sale of the Property will not be made in the course of an enterprise that the Vendor carries on. The requirement in paragraph 9-5(b) of the GST Act will not be satisfied.

The requirement in paragraph 9-5(d) of the GST Act will also not be satisfied as the Vendor is not registered for GST and will not be required to register.

The Vendor will not meet all the requirements in section 9-5 of the GST Act; thus, the sale of the Property will not be a taxable supply. Accordingly, the sale of the Property will not be subject to GST.

Question 3

As the response to Question 2 is 'No', a response to Question 3 is no longer necessary as advised.