Edited version of private advice

Authorisation Number: 1052061664651

Date of advice: 5 January 2023

Ruling

Subject: Taxable supply - sale of 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) and, as a result, will the trust be required to register for goods and services tax (GST)?

Answer

No. The sale of the property will not be a taxable supply in accordance with section 9-5 of the GST Act and the Trust will not be required to register for GST.

This ruling applies for the following periods:

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

The Trust is a discretionary Trust.

The corporate trustee does not hold any properties in its own right.

The property was purchased by the Trust in XXXX.

The property was purchased as vacant land.

The Trust has an Australian Business Number (ABN) but is not registered for GST.

The Trust has not made any improvements on the property and there are no structures or buildings on the property.

The property has not been used for income related purposes.

There are no services (power and water) available on the property.

Due to the mortgage costs and council costs the decision has been made to sell rather than to continue to hold.

There is a Development Plan Overlay (DPO) over the property which existed prior to purchase.

The zoning of the property has not changed in the time the Trust has owned the property. The property cannot be further subdivided, and the Trust has no intention of running an enterprise on the property.

The Property was purchased in the hope that it would increase in value over time. It is the only asset the Trust holds.

The Trust does not conduct any other activities.

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 104-10

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

Reasons for decision

All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 unless specifically noted.

Detailed reasoning

Under section 9-5, 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.

In this case, the property to be sold will consist of a property that is located in the indirect tax zone and the supply would be for consideration. Therefore, the sale of the property would satisfy two elements outlined above (1 & 3).

Accordingly, we need to determine whether the last two elements would also be satisfied. If this were the case, the supply of the property would satisfy all requirements of section 9-5 and would be a taxable supply.

Are you carrying on an enterprise?

The term enterprise is defined for GST purposes in section 9-20 and includes among other things, an activity or a series of activities done:

•         in the form of a business (paragraph 9-20(1)(a)).

•         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 and 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: 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, provides that the discussion on MT 2006/1 applies equally to the term 'enterprise' as used in the GST Act and can be relied upon for 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:

In this case, the Trust purchased the property and the property has not been used for any income earning activities. Given the facts, we consider that the proposed sale of the property by the Trust 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

The Trust acquired the property in xxxx which was a vacant plot of land. The property has not been used for any purpose since purchase. It has been decided to sell the property due to the increased costs of holding the property when there is no intention to develop it.

The length of time pf ownership

The Trust has owned the property since xxxx. The Trust has made no improvements or developed the property during the time of ownership.

The frequency and number of similar transactions

The Trust has not previously undertaken a sale of this nature.

Supplementary work on or in connection with the property realised

The Trust has not developed this property and has not used this property for any income related purposes. The property cannot be subdivided further due to the DPO.

The circumstances that were responsible for the realisation

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

Motive

The motive for selling the property is due to the ongoing costs to hold the property and that the Trust does not intend to develop it or use it for an income producing purpose. Although a profit may result from the sale of the property, the length of time the property has been held and the Trust's intentions in relation to the property show that, on an objective assessment, the property never had the characteristics of a trade asset.

Given the above, we do not consider the Trust's activities to constitute an adventure or concern in the nature of trade and, as such, the Trust is not carrying on an 'enterprise' for the purposes of GST in relation to the sale of this property. Therefore, the sale of the property will not be a taxable supply.

GST registration

Section 23-5 of the GST Act provides that an entity is required to be registered for GST if they carry on an enterprise and the GST turnover meets the registration turnover threshold (currently $75,000).

As detailed above, it is considered that the sale of the property does not form part of an enterprise being carried on by the Trust. Therefore, the Trust is not carrying on an enterprise for which it is 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

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

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?