Edited version of private advice

Authorisation Number: 1052012583327

Date of advice: 3 August 2022

Ruling

Subject: Sale of property

Question

Will the sale of the property by you be a taxable supply in accordance with section 9-5 of the GST Act?

Answer

No. The sale of the property will not be a taxable supply in accordance with section 9-5 the GST Act.

This ruling applies for the following period:

Financial year ending 30 June 20XX

The scheme commences on:

The date this ruling is issued

Relevant facts and circumstances

•   You purchased a vacant block of land (the property).

•   You engaged a builder to construct a residential premise in which you intended to live in.

•   Due to personal circumstances, you could no longer reside together in the property and as a result the decision was to advertise for sale.

•   Your previous tax agent advised you, that because you were selling new residential premises, the sale would be subject to goods and services tax (GST).

•   The partnership was registered for GST.

•   You claimed the input tax credits (ITCs) for the construction costs and other expenses relating to the property. You also remitted GST on the sale of the property.

•   Your GST registration was cancelled, but your Australian business number (ABN) is still active.

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

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.

* Denotes a defined term under section 195-1 of the GST Act

When the property was sold, the supply consisted of a property located in the indirect tax zone, the supply was for consideration and you were registered for GST. Therefore, the sale satisfied 3 elements outlined above (1,3 & 4). Accordingly, we need to determine whether element 2 will also be satisfied. If this were the case, the supply will 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, and activity or 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 includes 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 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 for GST purposes.

In the form of a business

Paragraphs 170 to 179 of MT 20061 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;

•         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 did 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 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 as a vacant lot with the intention of building your main place of residence.

The length of time of ownership

You have owned the property for a short amount of time while the house was constructed.

The frequency and number of similar transactions

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

Supplementary work on or in connection with the property realised

You were not involved in the initial subdivision of the development as a whole. You were merely purchasing a lot on which to have your main residence constructed.

The circumstances that were responsible for the realisation

The property was sold after the construction of the residence was completed due to personal circumstances.

Motive

The motive in relation to the property was to reside in the home as your main residence once completed. The above does not indicate that your intention in relation this property was a profit making one.

Conclusion

Given the above, we do not consider your activity of selling this property constitutes an adventure or concern in the nature of trade and as such, you were not carrying on an enterprise for the purposes of GST in relation to the sale of the property. Therefore, the sale of the property was not a taxable supply.