Edited version of private advice

Authorisation Number: 1052040820251

Date of advice: 19 October 2022

Ruling

Subject: GST and sale of property

Question

Will the sale of the specified vacant land be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) at the time of settlement of the sale?

Answer

No.

This ruling applies for the specified period.

The scheme commences on the specified date.

Relevant facts and circumstances

You are an entity.

Over a decade ago, you purchased the specified vacant land situated in Australia (the Land) from a relative.

The sale of the Land to you was not a taxable supply.

You did not purchase the Land with the intent of buying and selling it to make a quick profit.

You purchased the Land to provide your relative with financial assistance and retained it for sentimental reasons.

You have held onto the Land with an intent of building a home on it (to reside in) in the long term.

At the time of purchase, the Land had a shed already built on the land. The shed was installed by the previous owner. No further structures were installed, after you became the registered proprietor of the Land.

The shed was not used by you to generate income or by third parties for any purpose. You have used the shed for your private purposes.

There were no living amenities in the shed. The only improvement made to the property was the electricity recently connected to the shed, which was intended to eventually be a temporary home for your child.

Your residence is at a different address. You are the registered proprietor on title for this residence.

Your child has previously lived with you before moving to City Z.

You planned to build a home on the Land at a later time in order for your child to live in it. However, they subsequently changed their mind and remained living in City Z.

Due to your child's current situation, you are aware that you may need to relocate yourself to City Z to support your child there.

You do not currently own any other property.

You previously owned a property which you inherited along with a relative. This property was held for several years; was not used to produce income; and was recently sold for less than the market value at the time of inheritance.

You are not currently carrying on any business or enterprise activities.

You are currently not registered for GST.

After having held the Land for over a decade, you now plan to sell the Land as soon as possible, due to a change in your circumstances.

You expect to make a loss on the sale of the Land at today's market but given the circumstances, you feel this is the best course of action for you at this time.

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

A New Tax System (Goods and Services Tax) Act 1999 section 188-10

A New Tax System (Goods and Services Tax) Act 1999 section 188-25

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

Reasons for decision

GST is payable on taxable supplies.

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you must pay the GST payable on any taxable supply that you make.

You make a taxable supply if you meet the requirements of section 9-5 of the GST Act, which states:

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 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.

(*Denotes a term defined in section 195-1 of the GST Act)

All of the requirements of a taxable supply under section 9-5 of the GST Act must be met at the time of sale for the sale to be a taxable supply.

The sale is neither GST-free nor input taxed in the given circumstances.

The sale of the Land will meet the requirements of paragraphs 9-5(a) and 9-5(c) of the GST Act. This is because the Land is being sold and the Land is located in Australia.

You are currently not registered for GST. Therefore, we need to determine whether you are carrying on an enterprise and whether you will be required to be registered for GST at the time of settlement of the proposed sale of the Land.

Requirement to be registered for GST

Section 23-5 of the GST Act provides that an entity is required to be registered for GST purposes if both of the following requirements are met:

•         it is carrying on an enterprise; and

•         its GST turnover meets the registration turnover threshold (which is currently $75,000 for entities other than non-profit entities).

Enterprise

Section 9-20 of the GST Act defines 'enterprise' to include, amongst other things, an activity or series of activities done:

•         in the form of a business

•         in the form of an adventure or concern in the nature of trade

•         on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.

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

The ATO view on the meaning of the term 'enterprise' is explained in detail in 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).

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? (GSTD 2006/6) provides that the discussion in MT 2006/1 equally applies to the term 'enterprise' as used in the GST Act and can be relied on for GST purposes.

Whether or not an activity, or series of activities, amounts to an enterprise is a question of fact and degree having regard to all of the circumstances of the case.

Paragraph 178 of MT 2006/1 lists a number of indicators to be considered when determining whether an activity or series of activities amount to a business.

Paragraph 262 of MT 2006/1 acknowledges that the question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions.

No single factor will be determinative of whether the activity or activities will constitute either a business or an adventure or concern in the nature of trade.

In determining whether activities relating to isolated transactions are an enterprise or are the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each particular case.

Registration turnover threshold

Subsection 188-10(1) of the GST Act provides that you have a GST turnover that meets the registration turnover threshold if:

•         your current GST turnover is at or above the registration turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the registration turnover threshold, or

•         your projected GST turnover is at or above the registration turnover threshold.

In calculating your GST turnover under Division 188 of the GST Act certain supplies are excluded. Section 188-25 provides that when calculating your projected GST turnover, you do not include any supplies made, or likely to be made by you:

•         by way of transfer of ownership of a capital asset, or

•         solely as a consequence of ceasing an enterprise or substantially and permanently reducing the size or scale of your enterprise.

Goods and Services Tax Ruling GSTR 2001/7 explains the meaning of GST turnover and the effect of section 188-25 of the GST Act on the calculation of projected GST turnover. GSTR 2001/7 is available on our website at www.ato.gov.au

On the facts provided, we consider that you will not be required to be registered for GST. The requirements of section 23-5 of the GST Act will not be satisfied at the time of your proposed sale of the Land.

As you are currently not registered for GST and will not be required to be registered for GST at the time of sale, the sale will not meet all of the requirements for a taxable supply under section 9-5 of the GST Act.

Consequently, as the sale will not be a taxable supply, GST will not be payable on the sale of the Land.