Edited version of private advice

Authorisation Number: 1051936256357

Date of advice: 24 December 2021

Ruling

Subject: Sale of residential property held in the name of a company

Question

Is the sale of the property at X a taxable supply under section 9-5 of the A New tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

The scheme commences on:

2 December 20XX

Relevant facts and circumstances

X Pty Ltd was established in April 20XX and owns a property at X.

X is not registered for GST.

The property:

•         was purchased by you for development purposes in X.

•         is a habitable residential premise situated on a X square meter land.

•         has not gone through any renovation or construction since purchased.

•         has not been leased or occupied although, you have attempted to lease the property in X.

You incurred some development costs in X and X financial years but you did not claim any input tax credits on those costs as you were not registered for GST.

There were no development costs incurred since X.

Your intention changed from development to investment purpose in X financial year due to one of your director's severe health problems which meant the original plan of development had to be abandoned.

Your property is under a contract for a potential sale.

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 9-40

A New Tax System (Goods and Services Tax) Act 1999 section 40-65

A New Tax System (Goods and Services Tax) Act 1999 section 40-75

Reasons for decision

Section 9-40 states that 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)

All the requirements in section 9-5 of the GST Act must be met for your sale of the property at X to be a taxable sale.

When you will sell the property, it will be for a consideration. The sale will be connected with Australia as the property is located in Australia. The requirements in paragraphs 9-5(a) and 9-5(c) of the GST Act above will be satisfied.

We will now consider whether the sale will be made in the course of an enterprise that you will carry on and whether you will be required to register for GST when making the sale under paragraph 9-5 (b) of the GST Act.

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 2006/1 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 was acquired for development purposes however from x year the development plans were abandoned and was held as a capital asset. As such, you will not be carrying on an enterprise in the form of an adventure or concern in the nature of trade under section 9-20 of the GST Act when selling the property. Accordingly, paragraph 9-5(b) of the GST Act will not be satisfied.

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

Paragraphs 9 and 10 of Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) explain the requirements in sections 40-65 and 40-70 of the GST Act. To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Your property is habitual. Therefore, it has the elements of shelter and basic living facilities required to be residential premises.

'Residential premises' is defined in the GST Act as land or a building that:

•         is occupied as a residence or for residential accommodation, or

•         is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation.

A sale of residential property is input taxed in accordance with section 40-65 of the GST Act but:

1.    ...only to the extent that the property is residential premises to be used predominantly for residential accommodation (regardless of the term of occupation).

2.    However, the sale is not input taxed to the extent that the residential premises are:

(a) commercial residential premises; or

(b) new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998

The property has not been used for any commercial activities, only for residential use therefore, it is not a commercial property and is not a new residential premise.

In accordance with section 40-75 of the GST Act residential premises are new residential premises if they:

a)    have not previously been sold as residential premises and have not previously been the subject of a long-term lease; or

b)    have been created through substantial renovations of a building; or

c)    have been built, or contain a building that has been built, to replace demolished premises on the same land.

Paragraphs (b) and (c) have effect subject to paragraph (a).

The property has not been renovated or constructed and it is not a new residential premise. Therefore, the sale is an input taxed supply and not a taxable supply in accordance with section 40-65 and section 9 of the GST Act respectively.