Edited version of private advice

Authorisation Number: 1051935639912

Date of advice: 20 December 2021

Ruling

Subject: GST and the selling of property

Question

Would the sale of the property be a taxable supply in accordance with section 9-5 of the A New Tax System(Goods and Services tax) Act 1999 (GST Act)and, as a consequence, be subject to the withholding provisions under section 14-250 of Schedule 1 to the Taxation Administration Act 1953 (TAA).

Answer

No

This ruling applies for the following period:

Financial Year ending 30 June 2023

The scheme commences on:

20 December 2021

Relevant facts and circumstances

•                You own a property as joint tenants in common.

•                The property consists of XX acres of which a X acre portion includes your primary place of residence and the remaining XX acres of the property has been left as vacant farmland.

•                You have entered into a contract of sale with a third party to sell the entire property for $XXXX.

•                A partnership between you, held an Australian Business Number (ABN) and was registered for GST, however, this registration has ceased.

•                A farming enterprise has not been conducted on the property for a number of years.

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

Section 14-250 of Schedule 1 to the Taxation Administration Act 1953

Reasons for decision

Under section 9-5 of the GST Act, an entity makes a 'taxable supply where the supply:

•                is made for consideration; and

•                is made in the furtherance of an enterprise that you carry on; and

•                is connected with the indirect tax zone; and

•                is made by a supplier who is 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.

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

Although the partnership currently has an ABN, under which the farming enterprise was conducted, the partnership is no longer registered for GST.

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 Tax Office 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 the 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 on in a business-like manner and records kept;

•                the activities are of a reasonable size and scale;

•                a business of product; and

•                the entity has relevant knowledge or 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 proposed sale of the property by you does not display the characteristics 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 in 2014 on which a residential property was situated. The property was used for farming until 2016. Since this time the land has not been used for any farming activities. You have continued to reside in the residential property located on the property.

The length of time pf ownership

You have owned the property since 2014. This property has primarily been your place of residence since purchase with a few years of farming.

The frequency and number of similar transactions

You have not previously undertaken a sale of this nature.

Supplementary work on or in connection with the property realised

You have not consulted with council in relation to potential development or subdivision.

The circumstances that were responsible for the realisation

You have decided to sell the property as a whole including the residential property. The circumstances behind this decision and the length of time you have held this property does not indicate it to be commercial in nature.

Motive

Your motive in relation to the property appears to initially be to conduct a farming enterprise and to reside on the property, which you continued to do once the farming enterprise ceased. Although a profit may result from the sale of the property, the length of time you held the property and your initial intentions in relation to the properties, does 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 in relation to the sale of this property. Therefore, the sale of the property is not a taxable supply. Therefore, the sale of this property is considered a mere realisation of a capital asset.

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 detailed above, it is considered that the sale of the property is a mere realisation of a capital asset and does not constitute an enterprise for GST purposes. As such you are not required to be registered for GST.

GST withholding tax

A supply of new residential premises or potential residential land in Australia will be a taxable supply if you're registered or required to be registered for GST and the supply is:

•         Made for consideration

•         Made in the course or furtherance of an enterprise you carry on

•         Not a GST-free or input taxed supply.

As detailed above, we have determined that you are not carrying on an enterprise and that you are not registered or required to be registered for GST. Therefore, the sale of this property will not be a taxable supply and the provisions under Section 14-250 of Schedule 1 to the TAA will not apply in relation to this sale.

Conclusion

Your activity of selling the property, will not be done in the furtherance of an enterprise. You are not required to be registered for GST. As such you will not be liable for GST on the sales in accordance with section 9-40 of the GST Act and the GST withholding provisions will not apply to this sale.