Edited version of private advice

Authorisation Number: 1052002255458

Date of advice: 7 July 2022

Ruling

Subject: GST - taxable supply

Question

Will the sale of sections of the property by you, be a taxable supply in accordance with section 9-5 of the GST Act and as a consequence, be subject to the withholding provisions under section 14-250 of Schedule 1 to the TAA?

Answer

No. The supply of sections of the property by you will not be a taxable supply for the purposes of section 9-5 of the GST Act and as a result will not be subject to the withholding provisions under section 14-250 if Schedule 1 to the TAA.

This ruling applies for the following periods:

The financial year ending 30 June 20XX to financial year ending 30 June 20XX

The scheme commences on:

The date this ruling is issued

Relevant facts and circumstances

You purchased a house and land property in 19XX.

You purchased an adjoining property on a separate title being in19XX

The total property holding was used for adjoining property was never used for commercial purposes.

The two properties remained on separate titles.

The property is not eligible to have any building constructed on it.

Due to a change in circumstance and the size and upkeep required to maintain the additional property, you are proposing to sell off parts of the property.

Due to the restrictions on what the property can be used for, the local council has added additional conditions to the sales.

If the land is sold, the local council requires a subdivision to be applied for and for the subdivided land to be merged onto the titles of the purchases existing property residential Properties

You are retaining a portion of the property.

The land has not been advertised for sale and no real-estate agent has been engaged to undertake any sales activities.

You are not registered for goods and services tax (GST).

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

Section 14-250 of Schedule 1 to the Taxation Administration Act 1953

Reasons for decision

Under section 9-5 of the GST Act, and 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 indirect tax zone; and

4.    is made by a supplier who is registered, or require to be registered, for GST.

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

If sections of the property are subdivided and sold, the supply would consist of properties located in an indirect tax zone and the supplies would be made for consideration. Therefore, the potential sales 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 supplies would satisfy all requirements of section 9-5 of the GST Act and would likely be taxable supplies.

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 series of activities done:

•         in the form of a business (paragraph 9-50(1)(a)) or

•         in the form of an adventure in the nature of trade (paragraph 9-20(1)(b)).

The phase 'carry on' in the context of an enterprise includes doing anything in the course of the commencement or termination of an enterprise.

Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) 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 in MT 2006/1 applies equally to the term 'enterprise' as used in the GST Act and can be relied on the GST purposes.

In the form of a business

Paragraphs 170 to 179 of MT 2006/1 discuss factors to consider 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;

•         a business of product; and

•         the entity has relevant knowledge or skill.

Paragraph 179 of MT 006/1 state 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.

The property subject to the potential subdivision and sale cannot be seen as your primary residence. The property is a plot of land that backs onto your primary residence, which is on a separate title, and has been used by you since purchase as your back yard.

However, given the facts of this case, we consider that the proposed sale of any subdivided lots associated with the property by you does not display the characteristics of a 'business' as listed above.

Paragraph 245 of MT 2006/1 refers to '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 of realisation

You acquired the property in 19xx, which is vacant land and have utilised the total property holding as your backyard. The property has not been used for any commercial purpose during this time. The property cannot be constructed on it.

The length of ownership

You have owned the property for in excess of 40 years and have not used for a commercial purpose.

The frequency and number of similar transactions

You have not previously undertaken a sale of this nature.

Supplementary work on or in connection with the property realised

Although you have recently consulted with the local council in relation to the potential subdivision of the property, you have not actively marketed it for sale.

The subdivided lots can only be sold to the existing residential property owners and if a sale does occur the council has stipulated that the new parcel of land must be merged on the existing tile of the purchaser.

The circumstances that were responsible for the realisation.

You have decided to sell off parts of the property due your change in circumstances.

Motive

Your motive in relation to the property initially was to use it as an extension of your residential property. Although a profit will result from the sales of the property, the length of time of ownership and your initial intention in relation to it, does not show that your intention in relation to the property was a profit making one.

Given the above, we do not consider your activities to constitute an adventure or concern in the nature of trade and, as such, you are not carrying on an 'enterprise' for the purposes of GST in relation to the potential sales of this property. Therefore, the potential sale relating to this 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 threshold. (currently $75,000).

As detailed above, it is considered that the potential sales of the property will not constitute an enterprise for 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

•         not a GST-free or input taxed supply.

As we have determined that you are not carrying on an enterprise and that you are not required to be registered for GST, the sale of the property will not be a taxable supply when sold and the provision under section 14-250 of Schedule 1 to the TAA will not apply in relation to these sales.

Conclusion

Your activity of selling part of 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 sales in accordance with section 9-40 of the GST Act and the GST withholding provisions will not apply to these sales.