Edited version of private advice

Authorisation Number: 1052054721614

Date of advice: 8 December 2022

Ruling

Subject: GST - property

Question 1

Will the sale of the property be a taxable supply in accordance with Section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST ACT)?

Answer 1

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

This ruling applies for the following periods:

Financial year ending30 June 20XX to

Financial year ending 30 June 20XX

The scheme commences on:

The date this ruling is issued

Relevant facts and circumstances

•         The property was purchased by you on XX XXX XXXX.

•         The property was purchased as a vacant plot.

•         You do not hold an Australian Business Number (ABN) and are not registered for goods and services tax (GST).

•         You have not made any improvements on the property and there are no structures or buildings on the property.

•         There are services (power and water) available at the boundary of the property.

•         You have paid the ongoing expenses relating to the property but have not claimed any of these expenses on your income tax returns.

•         The property cannot be subdivided as there is a Development Plan Overlay (DPO) over the property which existed prior to purchase and the property is too small to earn income from it. You do not wish to build a house on the property in the future even if the DPO would allow.

•         You intend to market the property for sale.

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 23-5

Income Tax Assessment Act 1997 section 103-30

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 subsection 110-25(2)

Income Tax Assessment Act 1997 subsection 110-25(4)

Question 1

Will the sale of the property be a taxable supply in accordance with Section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST ACT)?

Answer 1

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

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.

If the property is sold, the supply would consist of a property which is located in an indirect tax zone and the supply would be made for consideration. Therefore, the sale 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 supply would 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, an 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 phrase '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 the GST purposes.

In the form of a business

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.

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 proposed sale of the property by you does not display the characteristics of a 'business' as listed above.

As the transaction may be described as one-off, we also need to consider the extended definition of 'enterprise' and whether this activity falls in the form of an adventure or concern in the nature of trade. MT 2006/1 provides guidance on the meaning of this expression.

An 'adventure or concern in the nature of trade' refers to transactions that have a commercial nature which are entered into for a profit-making purpose.

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 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 XXX which was a vacant plot of land. The property has not been used for any purpose since purchase. You have deicide to sell the property as you will not be building a residence on it given the DPO that is over the property.

The length of time of ownership

You have owned the property since XXX. You have not improved or developed the property during the time you have owned it.

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

You have not developed this property and you have not used this property for any income related purposes.

The circumstances that were responsible for the realisation

You have decided to sell the property as is. The circumstances behind this decision and the length of time you have held this property does not indicate it to be commercial in nature.

Motive

Your motive in relation to selling the property is that you will not be building a house on this property due to the DPO that exists. Although a profit may result from the sale of the property, the length of time you have held the property and your intentions in relation to the property does not show that your intention in relation to this 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 sale of this property. Therefore, the sale of the property is not a taxable supply. The sale of this property will be considered a mere realisation of a capital asset.

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 turnover threshold (currently $75,000).

As detailed above, it is considered that the sale of the property does not constitute an enterprise that you are carrying on for GST purposes. As such you are not required to be registered for GST.

Question 2

Will the sale of the land be a CGT event A1 under section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 2

Yes. The sale of the land is considered to be a disposal of a CGT asset and as such CGT event A1 will happen. The time of the event will be when you enter into the contract for the disposal.

Question 3

Will holding costs of the land not previously deducted be added to the CGT cost base of the asset?

Answer 3

Yes. Holding costs such as interest expenses and council rates will form part of the third element of the CGT cost base under subsection 110-25(4) of the ITAA 1997 except where the expenses have been previously deducted or they can be deducted in the relevant year as described in Taxation Determination TD 2005/47 Income tax: what do the words 'can deduct' mean in the context of those provisions in Division 110 of the Income Tax Assessment Act 1997 which reduce the cost base or reduced cost base of a CGT asset by amounts you 'have deducted or can deduct', and is there a fixed point in time when this must be determined?

Question 4

Will the GST you paid on the purchase price of the land form part of the CGT cost base of the asset?

Answer 4

Yes. Under subsection 110-25(2) of the ITAA 1997 the first element of the cost base includes the money you paid to acquire it. Under section 103-30 the cost base will be reduced any net input tax credit in relation to that amount. You were not registered for GST and did not claim any GST credits so there will be no reduction for the purchase price under section 103-30.