Edited version of private advice

Authorisation Number: 1051938332430

Date of advice: 12 January 2022

Ruling

Subject: GST - residential premises

Question

Will the sale of the property located in the indirect tax zone (the Property) be a 'taxable supply' as defined in section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

Your sale of the Property will not be a taxable supply because the sale was not made in the course of any enterprise and you are neither registered nor required to be registered for GST; therefore, GST will not be payable on the sale of the Property.

This ruling applies for the following periods:

1 July 20XX to 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are the owner of a property in Australia at XXX (the Property).

You are not registered for GST nor have you been registered in the past. You have not carried on a business of buying and selling land or property development in the past.

Your parents purchased the Property in the early 19XX's under a XX year term purchase. They built a house on the Property in the late 19XX's before completing the purchase in YYYY.

The Property, which was acquired by you in MM/YYYY via operation of your father's Last Will and Testament, comprises an area of X acres, X roods and X and X/X perches.

The house on the Property has previously been used as residential premises by you and your family members. The house was last resided in by one of your family members in YYYY and has remained vacant since your family member vacated the Property.

The Property is not farmland and has never been used for farming operations or any other commercial or income producing purposes, such as for leasing.

You are intending to sell the Property to XXX (Purchaser). The contract price is $XXX.

The sale of the Property will be granted through a Deed of Call Option and Put Option.

You entered into a Deed of Call Option and Put Option (Deed) with the Purchaser on DD/MM/YYYY.

The Deed provides for a Due Diligence period of X months (expiry date of DD/MM/YYYY).

A non-refundable Due Diligence fee of $XXX is payable on DD/MM/YYYY (date Deed was entered into).

The Purchaser must exercise the call option by DD/MM/YYYY ('Call Option Expiry Date').

The Call Option fee payable is $XXX and is payable on DD/MM/YYYY (X days after the Due Diligence expiry date).

In the event that either the Call Option or Put Option is exercised, the Due Diligence fee and Call Option fee will form part of the Deposit under the Sale Contract.

Clause X of the Deed states:

The Vendor grants the Purchaser, its servants or contractors or any person reasonably authorised by the Purchaser (after prior notice to the Vendor and subject to the Vendor's reasonable conditions) access to the Property for the purpose of:

(a)  the Purchaser's due diligence investigations;

(b)  preparation of the applications, plans or proposals in respect of the Property; and

(c)   surveying and testing reasonably required

provided that

(d)  the Purchaser undertakes no construction or other works upon the Property and causes no contamination;

(e)  the Purchaser reinstates the Property as nearly as practicable to its original condition;

(f)    ...

You will not be undertaking any subdivision or development activities and will be selling the Property in an as is condition.

Settlement is anticipated to be in MM or MM YYYY.

On completion of the purchase, it is expected the Purchaser will subdivide the Property and develop new residential premises for 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 9-20

A New Tax System (Goods and Services Tax) Act 1999 Section 23-5

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decision

Goods and services tax (GST) is payable on taxable supplies. Section 9-5 provides that 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 Australia; 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.

For the sale of the Property to be a taxable supply, all the requirements in section 9-5 must be satisfied.

In your case, you inherited the Property in MM/YYYY. The house on the Property is currently vacant; however, you have previously used the house as a residential premises for you and your family. You will be supplying the Property for consideration of $XXX. The supply will be connected with Australia. However, you are not registered for GST.

The primary issue to be resolved is whether the supply of the property is made in the course or furtherance of an enterprise you carry on, satisfying 9-5(b). If so, a further issue to be considered is whether you are required to be registered for GST.

Enterprise

Subsection 9-20(1) provides, amongst other things, that an enterprise is an activity, or series of activities, done:

(a)   in the form of a business; or

(b)   in the form of an adventure or concern in the nature of trade.

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) considers the meaning of carrying on an enterprise.

Paragraphs 177 to 179 of MT 2006/1 discuss the main indicators of carrying on a business, and state:

Indicators of a business

177. To determine whether an activity, or series of activities, amounts to a business, the activity needs to be considered against the indicators of a business established by case law.

178. TR 97/11 discusses the main indicators of carrying on a business. Based on that discussion some indicators are:

•        a significant commercial activity;

•         a purpose and intention of the taxpayer to engage in commercial activity;

•         an intention to make a profit from the activity;

•         the activity is or will be profitable;

•         the recurrent or regular nature of the activity;

•         the activity is carried on in a similar manner to that of other businesses in the same or similar trade;

•         activity is systematic, organised and carried on in a businesslike manner and records are kept;

•         the activities are of a reasonable size and scale;

•         a business plan exists;

•         commercial sales of product; and

•         the entity has relevant knowledge or skill.

179. There is no single test to determine whether a business is being carried on. Paragraph 12 of TR 97/11 states that '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'. TR 97/11 can be referred to for a fuller discussion on whether a particular activity constitutes the carrying on of a business.

Given the facts of this case, we consider that the activities you have undertaken do not display the indicators of a 'business' listed above.

In the form of an adventure or concern in the nature of trade

We now consider whether your activities are in the form of an adventure or concern in the nature of trade (paragraph 9-20(1)(b)).

Paragraph 244 of MT 2006/1 explains 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.

Paragraph 245 of MT 2006/1 refers to 'the badges of trade' with paragraphs 247 to 257 discussing the various 'badges of trade' that may be taken into account when determining whether assets have the characteristics of 'trade' and held for income producing purposes, or held as an investment asset or for personal enjoyment.

While an activity such as the selling of an asset may not of itself amount to an enterprise, account should be taken of the other activities leading up to the sale to determine if an enterprise is carried on.

Paragraph 262 of MT 2006/1 acknowledges that the question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions. Paragraph 263 continues stating that the issue to be decided is whether the activities being conducted are an enterprise in that they are of a revenue nature as they are considered to be activities of carrying on a business or an adventure or concern in the nature of trade (profit making undertaking or scheme) as opposed to the mere realisation of a capital asset.

Paragraph 265 of MT 2006/1 discusses that the cases of Statham & Anor v. Federal Commissioner of Taxation (Statham) and Casimaty v. FC of T (Casimaty) have established a number of factors to assist in determining whether activities are a business or an adventure or concern in the nature of trade with reference to real property transactions including:

• there is a change of purpose for which the land is held;
• additional land is acquired to be added to the original parcel of land;
• the parcel of land is brought into account as a business asset;
• there is a coherent plan for the subdivision of the land;
• there is a business organisation - for example a manager, office and letterhead;
• borrowed funds financed the acquisition or subdivision;
• interest on money borrowed to defray subdivisional costs was claimed as a business expense;
• there is a level of development of the land beyond that necessary to secure council approval for the subdivision; and
• buildings have been erected on the land.

Paragraph 266 of MT 2006/1 provides in part that no single factor will be determinative of whether the activity or activities will constitute either a business or an adventure or concern in the nature of trade.

In your case, the Property has been held by your family since the early YYYYs. You acquired the Property in YYYY via operation of your father's Last Will and Testament and the Property was used as the family residence until YYYY. Following this period the Property has remained vacant.

We have taken into account the above factors and consider your activities of entering into the Deed of Call Option and Put Option and subsequent sale of the Property neither constitute a business nor an adventure or concern in the nature of trade. Your activities do not fall within the scope of an enterprise as defined in section 9-20. We consider your activities to be a mere realisation of a capital asset..

Therefore, you do not satisfy paragraph 9-5(b), as the sale of the Property will not be in the course of an enterprise that you carry on.

In addition, we note that section 23-5 provides that an entity is required to be registered for GST if it is carrying on an enterprise and its GST turnover meets the registration turnover threshold. The current registration turnover threshold is $75,000 for businesses (and $150,000 for non-profit entities). In your case, you are not carrying on an enterprise and therefore you are not required to be registered for GST.

Conclusion

As your activities of selling the Property do not amount to an enterprise and you are not registered or required to be registered for GST, you will not be making a taxable supply when you sell the Property.