Edited version of private advice

Authorisation Number: 1051951648768

Date of advice: 25 February 2022

Ruling

Subject: Carrying on an enterprise

Question

Will goods and services tax (GST) be payable on the sale of the new townhouses built on a property in Australia?

Answer

Yes.

This ruling applies for the following period:

25 February 20XX to 24 February 20XX

Relevant facts and circumstances

You have no Australian Business Number (ABN) and are not registered for GST.

You, together with others (as tenants in common), purchased a property in Australia.

No GST was payable on the purchase of the property as there was an existing residential dwelling on the property which was not new residential premises for GST purposes.

The purchase contract was subject to an existing residential lease. The tenants remained living in the existing dwelling following its purchase, with the dwelling continuing to be rented until around the time that work commenced to have it demolished.

You advised that your financial advisor "recommended the option of buying a property to complete a development of townhouses for sale to share in the profit between the ... parties."

The tenants in common (also referred to as 'the parties') met with the developer recommended by the financial advisor to discuss engaging the developer's services to find a property to develop.

The tenants in common jointly decided to engage the developer and committed to entering into an agreement with the developer to develop townhouses on the property. You advised that the parties only engaged with the developer in order to look for a property to complete a development.

The developer undertook a feasibility assessment and costings for the property development. The market conditions at the time indicated that a profit would be likely for all the tenants in common, which is why the parties proceeded with the development.

From the very beginning, the tenants in common had the intention of purchasing a property to subdivide and then sell the newly constructed dwellings constructed on that property. The parties never had any other intentions (either initially or later) for the property.

An agreement was entered into with the developer regarding the division of the property into a number of separate lots and dwellings, involving (amongst other things) the developer undertaking the following in return for a fee:

•         sourcing a development site;

•         completing a planning investigation assessment of the site and then issuing a 'permit guarantee';

•         completing a schematic layout and design of the proposed project;

•         costing the total project;

•         providing the builder's construction cost for the new dwellings and the specification schedule;

•         providing a feasibility analysis report;

•         completing an investment overview report;

•         preparing the town planning architectural drawings;

•         lodging plans to obtain town planning permits;

•         obtaining a land subdivision permit;

•         undertaking project management.

The developer's architectural division drew up the building plans for the new townhouses to be built on the property. The tenants in common entered into a building contract with a builder for the construction of the new townhouses.

In relation to who was responsible for what regarding the property development:

•         the developer was to source the property, design the townhouses, manage and coordinate all development activities (including communication between the parties and the builder);

•         the builder was to undertake all construction on site.

There was no existing development permit for the property at the time of purchase. The development permit for the townhouses was obtained after the tenants in common had purchased the property.

The demolition contractor for the demolition of the existing dwelling on the property was a separate entity. This was organised by the developer.

There were delays with the demolition of the existing dwelling on the property due a lag in time for abolishment applications. There were also lengthy delays with the construction of the townhouses, due to the builder getting into financial difficulties. This resulted in the developer taking over the build in return for the parties waiving damages against the builder. Eventually the developer advised the parties that it was unable to complete the build, resulting in the parties having to deal with contractors, etc. on site themselves (spending some 18 hours per week on such activities, with only some intermittent assistance from the developer).

The delays resulted in the parties not being able to make loan repayments in relation to borrowing taken out by them for the development project. To avoid loan arrears, the parties took out personal loans and/or loans from family members. The deferral of loan repayments as a result of the COVID-19 pandemic also meant that there was some reprieve from having to make loan repayments.

The townhouses were finally completed. Shortly afterwards, contracts of sale were entered into for each of the townhouses, with settlement scheduled to occur 14 days from the date that the new titles are registered.

The townhouses consist of a number of bedrooms, bathrooms/toilets, as well as a kitchen, etc.

None of the new townhouses have ever been rented or advertised for rent. The parties did attempt to sell the townhouses whilst they were being constructed, prior to the construction having been completed. However, the real estate agents were critical of the slow progress of the build and no potential buyers eventuated at that earlier time.

You advised that there is an offset account in the names of the tenants in common from which expenses relating to the property development were paid from. The final sale proceeds from the townhouses will also make their way into the joint bank account belonging to the parties.

You advised that to date, no input tax credits have been claimed by any of the parties (either individually, collectively, or as part of another entity related/associated with them) in relation to either the demolition of the existing residence on the property or the construction of the new townhouses on the property. You advised that it was only when the sales contracts were being drafted by your lawyer that you were alerted to the possibility of having to pay GST on the sales.

You have however (as an individual) claimed some income tax deductions in relation to the rental of the existing dwelling on the property prior to it being demolished. Claims were only made for expenses incurred in the period that tenants occupied the existing dwelling; no deductions have been claimed post that period (i.e., nothing has to date been claimed against the sale proceeds for the townhouses).

You also advised that no financial statements have been prepared to date for the parties (either individually or as part of any entity related to them) in relation to the property development.

COVID-19 also adversely affected the project, and as a result additional loan interest and other unforeseen expenses have been incurred (you gave examples such as exorbitant holding costs, authority fees, trade payments and bank interest, etc., which you advised were not part of the initial feasibility assessment).

It is expected that the total of the sale prices of the townhouses will slightly exceed the purchase price of the property and the development costs. However, after having to pay off debts, fees and income tax, it is unlikely that there will be anything left from the sale proceeds.

The tenants in common/entities related to the parties have limited past property development experience and do not plan to undertake any similar development projects in the future.

You also advised that in the case where the ruling is unfavourable, you will not require advice (as part of this ruling) regarding which entity should register for GST. You added that the parties jointly made supplies of the townhouses.

You also advised that at the beginning of the property development project, the parties did not set up a partnership as it was not needed at the time. It had been your understanding back then that your respective accountants would process your tax returns accordingly as individuals. However, when the contracts of sale for the townhouses were drawn up by your lawyer, it was brought to your attention that the ATO required GST to be paid on the sales, and so it was at this point that a partnership (in which the tenants in common are partners) was set up and an ABN issued for that partnership (with the effective ABN registration date having been backdated).

The abovementioned partnership was also registered for GST, with the effective date of GST registration being backdated.

You advised that if the ATO were to rule that GST is payable on the sales of the townhouses, then the GST and any related input tax credit entitlements would be reported under the ABN of the abovementioned partnership.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 9-5

Section 9-20

Section 9-40

Section 23-5

Section 23-15

Section 40-35

Section 40-65

Section 40-75

Section 188-10

Section 188-15

Section 188-20

Section 188-25

Section 195-1

A New Tax System (Goods and Services Tax) Regulations 1999

Regulation 23-15.01

Reasons for decision

Section 9-40 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you must pay the GST payable on any taxable supply that you make, while 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 (essentially 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.

The supply of the townhouses (once the sales settle) will clearly be for consideration. Such consideration will consist of the sale price specified in the sale contract for each townhouse. Hence, the first requirement of a taxable supply will be met.

As the townhouses are on real property (land) that is located in Australia, the third requirement of a taxable supply will also be met.

The second and fourth requirements of a taxable supply are somewhat inter-linked. This is because, where the relevant entity making the supply is not already registered for GST, it will be necessary to determine whether the relevant entity is required to be registered for GST (the fourth requirement of a taxable supply). In so doing, it will be necessary to first consider whether the relevant entity is carrying on an enterprise (one of the requirements for GST registration - refer below) before then determining whether the supplies of the townhouses are made in the course or furtherance of an enterprise carried on by the relevant entity (second requirement of a taxable supply).

You have not sought clarification from us regarding which entity would be making the supply; you individually or the partnership entity that you are a partner in. You have only asked us to determine whether GST will be payable on the sale of each of the townhouses. It is, however, noted that none of the parties are currently registered for GST (on an individual basis); it is only the partnership of the parties that is registered (that having occurred recently with the effective registration date backdated).

Regardless of whether the supply of each of the townhouses is made by the parties individually or the partnership entity that each of the are a partner in, the answer to the question whether the supply of each of the townhouses will be subject to GST (once the sales settle) will, in the current circumstances, be the same.

It is noted that none of the provisions in the GST Act that could make a supply GST-free or input taxed will be applicable in relation to the supply (sale) of the townhouses. Specifically, it is noted that the townhouses (once the sales settle), will consist of the supply of new residential premises. Paragraph 40-65(2)(b) of the GST Act provides that the sale of residential premises, to the extent that they are new residential premises, will not be an input taxed supply of residential premises.

Thus, should the second and fourth requirements of a taxable supply be met along with the other two requirements of a taxable supply (which we have already determined are met), then the supply of each of the townhouses by the relevant entity would be a taxable supply and the relevant entity would be liable for GST on those supplies.

In the current circumstances, we consider that the relevant entity (either you individually, or more likely the partnership entity that the parties are partners in) would be required to be registered for GST if not already registered (the fourth requirement of a taxable supply) and that the supply (sale) of each of the townhouses by the relevant entity would be made in the course or furtherance of an enterprise carried on by the relevant entity (the second requirement of a taxable supply), for the reasons provided below.

Whether the relevant entity is required to be registered for GST

In accordance with section 23-5 of the GST Act, you are required to be registered for GST if:

(a)  you are *carrying on an *enterprise; and

(b)  your *GST turnover meets the *registration turnover threshold.

(* a term defined in the GST Act)

The relevant entity will thus be required to register for GST if it is both carrying on an enterprise and its GST turnover meets the registration turnover threshold.

Carrying on an enterprise/supply made in the course or furtherance of an enterprise

The term 'carrying on' an enterprise includes doing anything in the course of the commencement or termination of the enterprise; while the term 'enterprise' has the meaning given by section 9-20 of the GST Act (refer to section 195-1 of the GST Act).

Section 9-20 of the GST Act relevantly provides 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; or

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

However, subsection 9-20(2) of the GST Act contains some exclusions to the definition of enterprise. Of those exclusions, only those in paragraphs 9-20(2)(b) and 9-20(2)(c) of the GST Act could be of any relevance to your circumstances.

Paragraph 9-20(2)(b) of the GST Act provides that an enterprise does not include an activity, or series of activities, done as a private recreational pursuit or hobby. Paragraph 9-20(2)(c) of the GST Act provides that an enterprise does not include an activity, or series of activities, done by an individual or a partnership (whose members are all, or mostly, individuals) without a reasonable expectation of profit or gain.

Miscellaneous Taxation Ruling 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 guidelines on the meaning of enterprise for ABN purposes. Paragraph 1 of Goods and Services Tax Determination 2006/6 Goods and Services Tax: does 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? (GSTD 2006/6) provides that MT 2006/1 has equal application to the meaning of 'entity' and 'enterprise' for the purposes of the GST Act.

MT 2006/1 provides, at paragraph 153, that the A New Tax System (Australian Business Number) Act 1999 (ABN Act) does not define an 'activity, or series of activities', so in the absence of a statutory definition these terms take on their ordinary meaning. An activity is essentially an act or series of acts that an entity does, ranging from a single undertaking including a single act to groups of related activities to the entire operations of the entity.

MT 2006/1 goes on to provide at paragraph 154 that for an entity that has to carry on an enterprise to be entitled to an ABN, it is necessary to identify one activity or a series of activities that amount to an enterprise. If an entity carries on a number of activities, only one of those activities need constitute an enterprise in order for the entity to be entitled to an ABN. However, not every activity or series of activities that an entity carries on would by themselves amount to an enterprise or be activities carried on by them in an enterprise; some activities will be specifically excluded while others may not fall within the definition of enterprise.

Regarding how to determine the extent to which an activity or series of activities amounts to an enterprise, paragraph 159 of MT 2006/1 provides that whether or not an activity, or series of activities, amounts to an enterprise is a question of fact and degree having regard to all the circumstances of the case.

Paragraph 160 of MT 2006/1 provides that it is important that the relevant activity or series of activities are identified because one activity may not amount to an enterprise, but that activity taken into account with other activities may form an enterprise. All activities need to be taken into account including activities from the commencement to the termination of the enterprise.

Whilst an activity such as selling an asset may not in itself amount to an enterprise, account should also be taken of the other activities leading up to the sale to determine if the entity carried on an enterprise; being activities such as the purchase of the property, the construction of buildings on the property, the engagement of a real estate agent, etc. (refer paragraph 163 and example 15 of MT 2006/1).

Paragraph 13 of GSTD 2006/6 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. However, the sale of the family home, a private car or other private assets is not, without other factors being present, an adventure or concern in the nature of trade.

Given the ordinary meaning of an 'activity, or series of activities' as set out in MT 2006/1 (which is reiterated in paragraph 10 of GSTD 2006/6), an enterprise could therefore incorporate an isolated or one-off transaction, such as the development and sale of real property. This is as long as the necessary commercial flavour is present to make it an adventure or concern in the nature of trade.

Although there is no definition of the term 'in the form of an adventure or concern in the nature of trade' in the ABN Act, various courts have discussed the term, with the 'badges of trade' being referred to (refer to paragraphs 233 to 246 of MT 2006/1).

These 'badges of trade', which are discussed in more detail at paragraphs 247 to 261 of MT 2006/1, include:

•         the subject matter of realisation - this badge of trade considers the form and the quantity of property acquired. 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.

•         the length of period of ownership - a trading asset is generally dealt with or traded within a short time after acquisition.

•         the frequency or number of similar transactions - the greater the frequency of similar transactions the greater the likelihood of trade.

•         supplementary work on or in connection with the property realised - improving the property beyond preparing an asset for sale, to bring it into a more marketable condition and gain a better price suggests an element of trade.

•         the circumstances that were responsible for the realisation - trade involves operations of a commercial character. As assets can be sold for reasons other than trade, the circumstances behind the sale need to be considered.

•         motive - if the activities on an objective assessment have the characteristics of trade, the person's motive is not relevant. It is relevant in those cases where the evidence is not conclusive. Motive is also important in cases if there is a change in character of the asset.

•         trade v. investment assets - assets purchased with the intention of holding them for a reasonable period of time, to be held as income producing assets or to be held for the pleasure or enjoyment of the person, are more likely not to be purchased for trading purposes. Assets can change their character but cannot have a dual character at the same time.

Paragraphs 262 to 269 of MT 2006/1 specifically consider isolated or one-off real property transactions in the context of whether an enterprise is being carried on.

The issue to be decided is whether the activities 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.

A list of factors ascertained from cases assist in determining whether activities are a business or an adventure or concern in the nature of trade. If several of these factors are present it may be an indication that a business or an adventure or concern in the nature of trade is being carried on. These factors are as follows:

•         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.

In determining whether activities relating to isolated transactions are an enterprise or are the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each particular case. This may require a consideration of the factors outlined above, however, there may also be other relevant factors that need to be weighed up as part of the process of reaching an overall conclusion. No single factor will be determinative rather it will be a combination of factors that will lead to a conclusion as to the character of the activities.

No two cases are likely to be exactly the same. The question is necessarily one of fact and degree.

Specifically, in relation to land bought with the intention of resale, paragraph 270 of MT 2006/1 provides as follows:

270. In isolated transactions, where land is sold that was purchased with the intention of resale at a profit (which would be ordinary income) the Commissioner considers these activities to be an enterprise. This would be so whether the land was sold as it was when it was purchased or whether it was subdivided before sale. An enterprise would be carried on in this situation because the activities are business activities or activities in the conduct of a profit-making undertaking or scheme and therefore an adventure or concern in the nature of trade.

In order to reach a proper factual assessment, it is necessary to ask what the venture was and what gave it its commercial character.

For completeness, it is noted that Taxation Ruling 92/3 Income tax: whether profits on isolated transactions are income (TR 92/3) provides that it is not necessary that the intention or purpose of profit-making be the sole or dominant purpose; it is sufficient if it is a significant purpose (refer to paragraph 40 of TR 92/3).

Application of the above to the facts in your case

We consider that all the activities related to the development of the property together with the sale of the townhouses were done in the form of an adventure or concern in the nature of trade and were not done as a private recreational pursuit or hobby, nor were they done without reasonable expectation of profit or gain. The activities thus amount to an enterprise (the relevant entity that is undertaking/undertook those activities is/was carrying on an enterprise).

After having objectively considered and weighed all of the facts and circumstances of your case, we have concluded that the intention of the parties from the start, was to develop the property by demolishing the existing dwelling and constructing new townhouses to sell for a profit upon their completion. You clearly advised that this was your intention from the very beginning and the agreement that you entered into with the developer (prior to the property purchase having settled) confirms this.

Such intention never changed over time despite the significant delays with the development and unexpected costs. There is evidence that you even attempted to sell the townhouses 'off the plan' while they were being constructed but prior to their construction being complete. What is also relevant is that the townhouses have never been rented or advertised for rent; rather, they have only been advertised for sale (initially well prior to being completed), with a sale contract having been entered into for each of them soon after construction was completed.

It is noted that although the existing dwelling was rented for a period of time prior to it being demolished, this was still in line with the original intention for the property which had always been to develop the property by building new dwellings on it and selling those dwellings upon their completion. It makes commercial sense that the parties would have wanted to rent the existing dwelling prior to construction work commencing on the property, particularly given the various delays that were experienced with commencing the demolition and construction. In any case, profit making only needs to be a significant purpose (if it is not the sole or dominant purpose).

Considering what has occurred in relation to the property, the sale of the townhouses cannot be viewed as simply being the mere realisation of a capital/investment asset. What has occurred is much more than merely that required for realising a capital asset.

The level of development on the property went beyond simply subdividing a single parcel of land into a number of lots and then doing no more than what is necessary to secure council approval for the subdivision. In this case, the existing dwelling has been demolished to make way for the construction of multiple new townhouses. A significant amount of money has been borrowed to fund both the demolition of the existing dwelling and the construction of new townhouses.

The new townhouses never became an investment/capital asset at any stage, meaning that there is no investment/capital that could be the 'mere realisation' of a capital asset. As mentioned above, the townhouses had a contract of sale over them within a short period of time after their construction had been completed and they were never rented or even advertised for rent. It is also noted that given the circumstances in this case, it is not relevant to the ruling decision that the townhouses took a long period of time to be complete and be ready for sale (nor are the unfortunate circumstances behind this).

There was a coherent plan for the property development as the developer had undertaken a feasibility assessment for the parties. The developer had also undertaken to be responsible for the project management, which indicates a level of 'business' organisation (later the parties had to take over the project management themselves when the developer no longer had the capacity to do this). There was also a construction contract and there presumably also was a demolition contract (which are commercial agreements).

The parties also borrowed funds specifically to finance the construction of the townhouses. Although to date no financial statements have been prepared and no interest expenses or input tax credits have been claimed in relation to the property development (which if claimed could indicate an intention to carry on an enterprise and make taxable supplies), the reason for not claiming input tax credits appears to have been simply because you thought that GST was not payable on the sale of the townhouses.

Whilst it is noted that the parties/entities related to them have limited prior property development experience (the partnership has none, being a newly registered entity), as previously discussed, isolated or one-off transactions that do not amount to a business (such as a single project involving the construction and sale of residential premises), can still amount to an enterprise where they have a commercial flavour and/or the characteristics of a business deal.

Although the parties may have lacked the necessary expertise/skills regarding developing and subdividing the property as well as marketing the townhouses for sale, they engaged the services of others with such expertise/skills. In the last few months of the build, the parties were themselves directly involved with activities on site (even if this was not by choice).

Therefore, having objectively looked at the facts and circumstances, taken all of the above into consideration and weighing everything up, we have concluded that the relevant entity was/is carrying on an enterprise. That enterprise consists of the activities relating to the development of the property and the sale of the townhouses. It is this identified enterprise, carried on by the relevant entity, that the supply (sale) of the new townhouses will be made in the course or furtherance of (once the sales settle).

For completeness, the development and sale of the townhouses could not be seen as a hobby considering that the intention of the parties was always to develop the property and sell the townhouses for a profit. It is also noted that a profit had been expected from the property development and that there was a reasonable basis for such expectation based on the feasibility assessment which the developer had undertaken for the parties right at the beginning of the project. Thus, the exceptions to an enterprise in paragraphs 9-20(2)(b) and 9-20(2)(c) of the GST Act are not applicable.

As the relevant activities of the parties have a commercial flavour and the characteristics of a business deal, paragraph (a) of section 23-5 of the GST Act (carrying on an enterprise) is satisfied.

Registration turnover threshold

Should the relevant entity meet the first requirement for being required to be registered for GST (i.e., the requirement in paragraph (a) of section 23-5 of the GST Act that the entity is carrying on an enterprise), the relevant entity would still need to meet the second requirement (in paragraph (b) of section 23-5 of the GST Act) before being required to be registered for GST. The second requirement for GST registration is that the relevant entity's GST turnover meets the registration turnover threshold.

As specified in section 23-15 of the GST Act and regulation 23-15.01 of the A new Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations), the registration turnover threshold is currently $75,000 for entities other than non-profit bodies.

Subsection 188-10(1) of the GST Act provides that you have a GST turnover that meets a particular turnover threshold if:

(a)  your *current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your *projected GST turnover is below the turnover threshold; or

(b)  your projected GST turnover is at or above the turnover threshold.

The terms 'current GST turnover' and 'projected GST turnover' are defined in sections 188-15 and 188-20 of the GST Act respectively.

Put simply, an entity's current GST turnover is the sum of the values of all supplies made in a particular month plus the previous 11 months and an entity's projected GST turnover is the sum of the values of all supplies made in a particular month plus the next 11 months.

In calculating current GST turnover and projected GST turnover, the following supplies (amongst others) are not included in the calculation:

(a)  supplies that are input taxed (such as financial supplies, residential rent and the sale of residential premises which are not new residential premises);

(b)  supplies that are not for consideration (and are not taxable supplies under section 72-5 of the GST Act); and

(c)   supplies that are not made in connection with an enterprise that you carry on.

Further to the above, paragraph 188-25(a) of the GST Act states that in working our your (the relevant entity's) projected GST turnover, "disregard: (a) any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours."

Application of the above to the facts in your case

It is now necessary to look at whether the relevant entity's GST turnover met the registration turnover threshold and, as such, whether paragraph (b) of section 23-5 of the GST Act is also satisfied.

As previously discussed, input taxed supplies are excluded from the calculation of current and projected GST turnover.

Each of the townhouses are clearly residential premises given their physical characteristics. Also, each of the townhouses were new residential premises at the time of their sale, as they were built to replace demolished premises on the same land, had not previously been sold as residential premises, were not previously the subject of a long-term lease, and had not been rented for at least five years after being completed and prior to their sale (refer to section 40-75 of the GST Act).

Thus, given that the relevant entity is selling new residential premises, the sale of the townhouses would not be excluded from the calculation of GST turnover on the basis of being input taxed supplies.

As previously discussed, supplies that are not for consideration (and are not taxable supplies under section 72-5 of the GST Act) are also excluded from the calculation of current and projected GST turnover. This exclusion does not however apply in the given circumstances since the supply (sale) of each of the townhouses is clearly for consideration.

Further, as previously discussed, supplies (sales) not made in connection with an enterprise carried on by the relevant entity are also excluded from the calculation of current and projected turnover.

We have already discussed why we consider the supply (sale) of each of the townhouses to have been made in the course or furtherance of an enterprise carried on by the relevant entity. Therefore, the sale (supply) of each of the townhouses would not be excluded from the calculation of GST turnover on the basis of not being made as part of an enterprise.

Finally, as we have already determined that the sale of each of the townhouses was not the mere realisation of a capital asset, the sale proceeds are also not excluded from the calculation of projected GST turnover under paragraph 188-25(a) of the GST Act.

Hence, the consideration received/expected to be received by the relevant entity from the sale of each of the townhouses would, at the relevant time, need to be included in the calculation of the relevant entity's current/projected GST turnover.

The relevant entity would be required to register for GST on the date that its current or projected GST turnover reached $75,000. Given the facts in this case, the earliest date that the relevant entity would have been required to register for GST was the time when during a particular month the sum of the values of the townhouse sales made, or likely to be made, during that particular month and the next 11 months, totalled at least $75,000.

Thus, given that the sale price for each townhouse would have been both expected and ended up being hundreds of thousands of dollars, the GST turnover for the relevant entity meets the GST turnover threshold of $75,000 (being the other requirement, in addition to the enterprise requirement, that must be met in order for the relevant entity to be required to be registered for GST).

The relevant entity is therefore required to be registered for GST (if not already registered) and the supply (sale) of each of the townhouses (once the sale contracts settle) will each be a taxable supply on which GST will be payable (with the recipient of the supply/purchaser needing to withhold the relevant GST and remit it to the ATO).

It is noted that the partnership (which the parties are partners in) recently registered for GST, backdating the effective date of registration. Thus, if this is the entity that made the supplies of the townhouses, then it will be making taxable supplies on the sales of the townhouses (once the sales settle) and will need to pay GST on those sales. However, regardless of which entity is the one making the supplies of the townhouses (the partnership or the parties individually), the outcome will be the same for the relevant entity (it is just the amount of GST that would vary on an individual, but not on an overall, basis).

Subject to all the usual requirements for claiming input tax credits being met and the facts remaining as set out above, the relevant entity may have an entitlement to input tax credits on the GST included in any development/construction costs and selling expenses.