Edited version of private advice

Authorisation Number: 1051999696633

Date of advice: 5 July 2022

Ruling

Subject: GST and the sale of land by a charity

Is the sale of the Vacant Lot a taxable supply and subject to goods and services tax (GST)?

Answer

Yes.

This ruling applies for the following period:

5 July 20XX to 5 July 20XX

Relevant facts and circumstances

You are registered as a charity with the Australian Charities & Not-for-profits Commission (ACNC) in the public benevolent institution (PBI) sub-type / category.

You have income tax exempt charity status and deductible gift recipient (DGR) status.

You are registered for GST.

You are seeking to subdivide land owned by the charity on which you carry out your charitable activities. After subdivision you plan to sell a Vacant Lot. The Vacant Lot will not contain any buildings. You have not acquired any additional land to be added to the original parcel of land

You submit that the sale of the Vacant Lot will not be GST-free or input taxed.

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 195-1

Reasons for decision

Detailed reasoning

In this reasoning, please note:

•         all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

•         all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

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 guidelines on the meaning of carrying on an enterprise.

Paragraph 1 of Goods and Services Tax Determination GSTD 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? provides that the guidelines in MT 2006/1 are considered to apply equally to the term 'enterprise' as used in the GST Act and can be relied upon for GST purposes.

Paragraph 3 of MT 2006/1 provides:

Included within the meaning of enterprise are all of the activities done by:

•         the trustee of a fund that is covered by, or by an authority or institution that is covered by, Subdivision 30-B of the Income Tax Assessment Act 1997 (ITAA 1997) and to which deductible gifts can be made;

•         a charity; and ...

You contend that your proposed subdivision activities and the sale of the Vacant Lot will not be an adventure or concern in the nature of trade or a profit-making undertaking or a scheme. It will simply be a mere realisation of excess land in an enterprising way in order to fund your charitable activities.

You maintain you will not satisfy paragraph 9-20(1)(b) as the sale of the Vacant Lot will not be part of a series of activities undertaken in the form of an adventure or concern in the nature of trade and will be a mere realisation of a capital asset in an enterprising way. Therefore, the sale of the Vacant Lot will not be made in the course or furtherance of an enterprise you carry on.

Section 9-40 provides that you must pay the GST payable on anytaxable supply that you make.

Under section 9-5, you make a taxable supplyif:

a)    you make the supplyfor *consideration; and

b)    the supply is made in the course or furtherance of an *enterprise that you *carry on; and

c)    the supplyis *connected with the indirect tax zone; and

d)    you are *registered,or *required to be registered.

However, the supplyis not a *taxable supply to the extent that it is *GST-freeor *input taxed.

Section 195-1 states that if a provision of the GST Act uses the expression 'you', it applies to entities generally, unless its application is expressly limited.

In this case, you will be supplying the Vacant Lot for consideration and the Vacant Lot is located in the indirect tax zone therefore paragraphs 9-5(a) and (c) are satisfied.

You are registered for GST therefore paragraph 9-5(d) is satisfied. The supply of the Vacant Lot will not be GST-free or input taxed.

In this case it needs to be determined whether paragraph 9-5(b) is satisfied and the supply of the Vacant Lot is a taxable supply.

Paragraph 9-5(b) requires that the supply is made in the course or furtherance of an enterprise that the entity carries on. Paragraph 9-20(1)(e) provides that an enterprise includes an activity, or a series of activities, done by a charity. Once an entity is endorsed as a charity, their activities will meet the definition of an enterprise under paragraph 9-20(1)(e).

For the sale of the Vacant Lot to be made in the course or furtherance of your enterprise, the sale of the Vacant Lot must have a connection to your enterprise.

Goods and Services Tax Ruling GSTR 2004/8 'Goods and services tax: when does an entity have a decreasing adjustment under Division 132?' considers the meaning of 'in the course or furtherance of an enterprise'. At paragraph 28 it states:

28.                For the sale of a thing to be made in the course or furtherance of your enterprise, the sale of the thing must have a connection with your enterprise. Whether a connection between the sale of the thing and your enterprise exists will depend on the facts and circumstances. The Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 states:

'In the course or furtherance' is not defined but is broad enough to cover any supplies made in connection with your enterprise. An act done for the purpose or object of furthering an enterprise, or achieving its goals, is a furtherance of an enterprise although it may not always be in the course of that enterprise. 'In the course or furtherance' does not extend to the supply of private commodities, such as when a car dealer sells his or her own private car. See Case N43 (1991) 13 NZTC 3361.

Paragraph 29 of GSTR 2004/8 further states:

29.  Given the broad meaning of 'in the course or furtherance', a sale of a thing is capable of being made in the course or furtherance of an enterprise regardless of the extent to which it has a connection with the enterprise, so long as it has some connection. The GST Act does not require that the thing must be applied primarily or principally in carrying on the enterprise for the supply of the thing to be in the course or furtherance of an enterprise. Accordingly, a connection between the sale of the thing and your enterprise exists even if, at the time of its sale, the thing is applied in carrying on the enterprise to a minor or secondary extent.

While not all of the property may have been utilised in your charitable activities, the property is being subdivided so that the value of Vacant Lot can be realised. Your charitable activities are conducted on the property.

Selling the Vacant Lot is considered to be an act which will further your charitable activities. This is done by helping you realise assets that provide extra funds which can be used to achieve your charitable goals.

The sale of the Vacant Lot will be in the course or furtherance of your enterprise where it has some connection with the enterprise. Paragraph 30 of GSTR 2004/8 considers characteristics which indicate the following characteristics of a thing which indicates strongly that the sale of a thing has a connection with your enterprise:

•         at the time of sale it formed part of the assets of your enterprise (for example, it is trading stock or a depreciable asset for income tax purposes);

•         at the time of sale it was applied in carrying on your enterprise to at least some extent; and

•         it is sold as a transaction of your enterprise.

Each of these points will indicate a connection and not all of the points need to be satisfied. The word 'Asset' is not defined in the GST Act. The Macquarie Dictionary online, www.macquariedictionary.com.au,accessed 27 June 2022, defines the term as 2. an item of property, as a building, a piece of equipment, etc...,3. an economic resource.... In this respect the Vacant Lot is an asset which you are seeking to realise. As you are registered for GST, the sale of that asset will be a taxable supply where the requirements of section 9-5 are met.

Note: trading stock and depreciable assets for income tax purposes are merely two types of assets and do not represent an exhaustive list of assets an enterprise can have.

In summary

The facts and circumstances of the sale of the Vacant Lot establish a sufficient connection with your charitable enterprise such that paragraph 9-5(b) of the GST Act will be satisfied. Given that the other elements of section 9-5 of the GST Act will also be met, the sale of the Vacant Lot will be a taxable supply.