Edited version of private advice

Authorisation Number: 1052019228270

Date of advice: 30 August 2022

Ruling

Subject: GST - carrying on a business

Question 1

Is the Trust carrying on an enterprise for the purpose of goods and services tax (GST) of glamping and permaculture activities and as a consequence required to be registered for GST?

Answer

No.

Question 2

Is the Trust carrying on an enterprise for the purposes of GST in relation to the cleaning and maintenance services the Trust provides to third party Trust and as a consequence be required to register for GST?

Answer

Yes.

This ruling applies for the following periods:

Financial year ending 30 June 20XX

Financial year ending 30 June 20XX

Financial year ending 30 June 20XX

Financial year ending 30 June 20XX

Financial year ending 30 June 20XX

The scheme commences on:

The date this ruling is issued

Relevant facts and circumstances

The Trust holds an Australian Business Number (ABN), however is not registered for the GST.

The Trust purchased a property set on a large parcel of land consisting of a farmhouse, farming land, fruit trees, shearing and machinery shed.

The farmhouse has been renovated and is currently occupied by the Trust's employees.

Proposed development for the property as per the business plan is to establish permaculture gardens to grow produce and keep animals.

The Trust is also planning to sell the produce grown.

Several sites have been identified as suitable for the development of glamping/camping.

The Trust intends to be running education weekend permaculture workshops/retreats to educate sustainable living and will offer permaculture design certificate (PDC) courses.

The Trust is currently invoicing and receiving income from third party Trust for maintenance services, ground keeping, rubbish removal and occasional cleaning services conducted on the adjoining property.

The Trust anticipates it would be able to accommodate a maximum of XX people overnight in the glamping tents.

The conversion of the shearing shed should be available for use by XXX and will be used for indoor workshops, group activities, camp kitchen and bathroom facilities.

The Trust will also be offering the converted shearing shed space to individual organisers for small group retreats.

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 11-5.

A New Tax System (Goods and Services Tax) Act 1999 section 11-15.

A New Tax System (Goods and Services Tax) Act 1999 section 11-20.

A New Tax System (Goods and services Tax) Act 1999 section 23-5

A New Tax System (Goods and services Tax) Act 1999 section 23-10

A New Tax System (Goods and Services Tax) Act 1999 section 23-15

A New Tax System (Goods and services Tax) Act 1999 subsection 188-10(1)

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

A New Tax System (Goods and Services Tax) Act 1999 subsection 40-35(1)

Reasons for decision

Question 1

Is the Trust carrying on an enterprise for the purpose of goods and services tax (GST) of glamping and permaculture activities and as a consequence required to be registered for GST?

Detailed reasoning

Section 9-40 provides that you must pay GST on any taxable supply that you make.

Under section 9-5, you make a taxable supply if:

(a)  you make the supply for consideration; and

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

(c)   the supply is connected with the indirect tax zone, and

(d)  you are registered, or required to be registered

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

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)).

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.

The term 'carrying on' an enterprise is defined in the GST Act to include '...doing anything in the course of the commencement or termination of the enterprise'.

An entity can have different arms to an enterprise being carried on. In this case we will separate the activities being carried on by the Trust, being the cleaning and maintenance activities and the potential activities in relation to the permaculture and glamping.

The permaculture and glamping enterprise

Paragraph 122 of MT 2006/1 confirms that activities done by an entity that are part of a process of beginning or bringing into existence an enterprise are activities in carrying on an enterprise.

Paragraphs 126 and 127 of MT 2006/1 provides:

126. In the case of feasibility studies involving genuine business activities where, from the scale and nature of these activities it is clear that there has been serious contemplation of developing an enterprise, it will be accepted that this has been the commencement off an enterprise.

127. In the contract there is a range of activities that are of a private nature or too remote from fruition that are not for the commencement activities of an enterprise. As well, commencement activities require more than intention. For example, if a person undertakes a tour of a wine region to enhance their knowledge of the wine industry with the aim to possibly establish some future business activity, the Commissioner would not consider this to be commencement activities.

The business plan and additional information provided, shows the Trust has purchased some bare rooted stock for the apple orchard, gave a large amount of detail in relation to the intention of activities/services such as establishing camping/glamping sites and permaculture gardens, running educational permaculture workshops/retreats, conversion of the shearing shed to provide facilities for the supply of these facilities to individual organisers for small group retreats, among other activities. It appears that the Trust has an intention to start an enterprise, but these activities are preliminary in nature are not considered activities done in the course of commencement of an enterprise.

Question 2

Is the Trust carrying on an enterprise for the purposes of GST in relation to the cleaning and maintenance services the Trust provides to third party Trust and as a consequence be required to register for GST?

The cleaning and maintenance activities

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.

The Trust currently employs staff to provide maintenance duties and caretaker duties in relation to the adjoining property. The staff currently reside on either the property in the existing farmhouse or on the adjoining property owned by a third-party Trust.

We see that the activity of maintenance and cleaning services being carried on by the Trust are in the form of a business and therefore would amount to the carrying on of an enterprise for the purposes of section 9-20 of the GST Act.

As the Trust is not registered for GST, it needs to be established whether the Trust is required to be registered for GST will depend on the turnover or projected of the Trust.

Are you required to be registered for GST?

Section 23-5 of the GST Act provides that you are required to be registered if:

(a)  you are carrying on an enterprise, and

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

You are required to be registered where both the above requirements are met.

Section 188-10 of the GST Act provides that your GST turnover meets the registration turnover threshold if:

(a)  your current GST turnover is at or above $75,000 and the Commissioner is not satisfied that your projected GST turnover is below $75,000; or

(b)  your projected GST turnover is at or above $75,000.

Your current GST turnover is the sum of the values of all supplies made in a particular month plus the previous 11 months. Your 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 (which includes financial supplies, residential rent and sale of residential premises);

(b)  supplies that are not for consideration;

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

(d)  supplies that are not connected with Australia.

Based on the information and facts relating to this case, we accept that the Trust is running an enterprise of cleaning and maintenance services however, not in relation the other activities detailed.

The Trust is entitled to register for GST in relation to the maintenance and cleaning enterprise. The Trust can voluntarily register for GST in relation to this enterprise even if the turnover threshold of $75,000 is not reached.

Entitlement to claim input tax credits

Section 11-20 of the GST Act provides that an entitlement to claim an input tax credit (ITC) will arise on a creditable acquisition that you make.

Section 11-5 of the GST Act defines the term 'creditable acquisition' and states that you make a creditable acquisition if:

(a)  you acquire anything solely or partly for a creditable purpose; and

(b)  the supply of the thing to you is a taxable supply; and

(c)   you provide, or are liable to provide, consideration for the supply; and

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

For an acquisition to be a creditable acquisition, all the requirements of section 11-5 of the GST Act must be satisfied.

Section 11-15 of the GST Act provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, you do not acquire something for a creditable purpose to the extent that it relates to making supplies that would be input taxed or that are of a private or domestic nature.

Input taxed supplies and residential premises

Subsection 40-35(1)(a) provides that a supply of premises by lease, hire or license is input taxed if the supply is of residential premises (other than a supply of commercial residential premises or accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises).

Paragraph 40-35(2)(a) qualifies the above stating that the supply will be input taxed only to the extent that the premises are to be used predominantly for residential accommodation (regardless of the term of occupation).

'Residential premises' is a defined term for GST purposes, and means land or a building that:

•         is occupied as a residence or for residential accommodation, or

•         is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation;

(regardless of the term of the occupation or intended occupation).

The phrase 'residential premises are to be used predominantly for residential accommodation (regardless of the term of occupation)' is explained in GSTR 2012/5 Goods and Services Tax Ruling, Goods and services tax: residential premises (GSTR 2012/5).

Paragraph 9 of GSTR 2012/5 states that the term is to be interpreted as a single test that looks to the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation.

Paragraph 10 of GSTR 2012/5 further explains:

The requirement for residential premises to be used predominantly for residential accommodation does not require an examination of the subjective intention of, or use by, any particular person. Premises that display physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises.

Further, paragraph 15 of GSTR 2012/5 states that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation.

From the information provided, the Trust purchased the property consisting of a farmhouse and associated structures. We have determined that the Trust is running an enterprise of cleaning and maintenance services and the farmhouse is currently being used to provide accommodation to an employee and eventually the caretaker.

We consider the farmhouse satisfies the definition of residential premises for GST purposes and is being used for making input taxed supplies under paragraph 40-35(1)(a).

As the property was not acquired for a creditable purpose the property does not satisfy paragraph 11-5(a) of the GST Act. Consequently, the Trust will not be entitled to input tax credits in regard to the acquisition or renovation expenses of the farmhouse as relates to making input tax supplies.