Edited version of private advice

Authorisation Number: 1051970711191

Date of advice: 7 April 2022

Ruling

Subject: a taxable supply for the purposes of section 9-5 of the GST Act

Question

Would the sale of one of the newly constructed property, be a taxable supply in accordance with section 9-5 of the A New Taxation System (Goods and Services) Tax 1999 (GST Act)?

Answer

No, the sale of the property will not be a taxable supply for the purposes of section 9-5 of the GST Act as you are not carrying on an enterprise for the purposes of GST and are not required to be registered for GST in relation to this sale.

This ruling applies for the following period:

Financial year ending 30 June 2023

The scheme commences on:

The date the ruling is issued

Relevant facts and circumstances

•                    You do not have an Australian business number (ABN) and are not registered for goods and services tax (GST).

•                    You purchased a residential property.

•                    The property was leased for two years.

•                    The property was demolished to make way for the construction of townhouses.

•                    Development approval (DA) was applied for in relation to the property, requesting a redevelopment of the property. This DA was approved.

•                    Your intention when you purchased the property was for investment purposes, to build the new development and lease them out in order to generate an income.

•                    You provided documentation proving your initial intention was to lease the newly constructed properties.

•                    You have stated that after reviewing your overall level of debt you have to now sell one of the properties.

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

Schedule 1 to the Taxation Administration Act 1953 section 14-250

Reasons for decision

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

1.    is made for consideration; and

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

3.    is connected with the indirect tax zone; and

4.    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.

In your case, the property will consist of a newly constructed property which if sold would be a property located in the indirect tax zone and the supply would be for consideration. Therefore, the sale of the property 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 of the property would satisfy all requirements of section

9-5 of the GST Act and would be a taxable supply.

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 a 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 phase 'carry on' in the context of an enterprise incudes 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 and enterprise for the purposes of entitlement to an Australian Business Number (MT2006/1) 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 on MT 2006/1 applies equally to the term 'enterprise' as used in the GST Act and can be relied on for 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 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

You acquired the property in 20xx on which a residential property was situated. The property was tenanted from the time of purchase until 20xx, when the building was demolished, and the construction of new properties was commenced.

The length of time of ownership

You have owned the property since 20xx.

The frequency and number of similar transactions

You have not previously undertaken a sale or development of this nature.

Supplementary work on or in connection with the property realised

Although you applied for and received development approval to demolish the existing residence and rebuild new properties, your intention was to lease these properties to generate a monthly income.

The circumstances that were responsible for the realisation

Due to the high level of debt, you are currently servicing you have decided to sell the one of the new properties.

Motive

Although a profit may result from the sale of the property, your initial intentions in relation to the original property and the subsequent development of the property as a whole, does not show that your intention in relation to this property was to sell with an intention of making a profit.

Given the above, we do not consider your activities to constitute an adventure or concern in the nature of trade and as such, you would not be carrying on an 'enterprise' for the purposes of GST in relation to the potential sale of the property. Therefore, the sale of the property will not be a taxable supply.

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).

It is considered that the proposed sale of the property will be a mere realisation of a capital asset and does not constitute an enterprise for the 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, and

•                    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 the property will not be a taxable supply and the provisions under section 14-250 of Schedule 1 to the Taxation Administration Act 1953 (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 sale of the property in accordance with section 9-40 of the GST Act and the withholding provisions will not apply to this sale.