Edited version of private advice

Authorisation Number: 1052075186902

Date of advice: 10 January 2023

Ruling

Subject: Taxable supply

Question 1

Is the property potential residential land?

Answer

Yes. The property is potential residential land based on the re-zoning by the local council.

Question 2

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

Answer

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

Question 3

Will the Trust be required to register for GST?

Answer

No. The Trust will not be required to register for GST in relation to the sale of the property.

Question 4

Will the sale of the property be subject to the GST withholding provisions under section 14-250 of Schedule 1 to the Taxation Administration Act 1953 (TAA)?

Answer

No. The sale of the property will be not subject to the GST withholding provisions under section 14-250 of Schedule 1 to the TAA.

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 notice of Private Ruling is issued

Relevant facts and circumstances

The Trust acquired the property in rural NSW in 19XX.

The property was acquired for investment purposes as a long-term capital growth investment asset.

No development applications have been applied for in relation to this property and the Trust has no intention of subdividing the property.

There has been no residence constructed on the property or any improvements carried out since the Trust purchased the property.

No income is being received from the property and no business activities have been conducted on the property.

The local council has recently re-zoned the land as "Residential - general".

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

The Trust's other activities are unrelated to the property.

The Trust has decided to sell the property to assist the beneficiaries financially.

Relevant legislative provisions

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

Schedule 1 to the Taxation Administration Act 1953 section 14-250

Reasons for decision

Question 1

Is the property potential residential land?

Answer

Yes. The property is potential residential land based on the re-zoning by the local council.

Law Companion Ruling LCR 2018/4 Purchasers' obligation to pay an amount for GST on taxable supplies of certain real property (LCR 2018/4) is about GST notification and withholding requirements for vendors and purchasers of residential premises and potential residential land.

Paragraphs 23 - 31 of LCR 2018/4 provides the meaning of potential residential land.

Meaning of potential residential land

23.  The GST Act defines 'potential residential land' as 'land that it is permissible to use for residential purposes, but that does not contain any buildings that are residential premises.

24.  It is permissible to use land for residential purposes if the land use and planning laws that apply to the land allow residential use of the land. It is not permissible to use land for residential purposes if the land use and planning laws that apply to the land prohibit residential use of the land. Where the land use and planning laws permit a number of uses for the land, one of which is residential use, then the land will be potential residential land.

25.  Land use and planning laws typically categorise land by zones. These define the potential uses of the land and say what the land may be used for.

26.  For example, residential zonings typically allow 'dwelling use', meaning the land may be used for residential purposes. Commercial or business zoning may also permit use of land for residential purposes. Similarly, agricultural or rural zoning may allow use of land for a residential purpose like a residence on farmland. On the other hand, land may be zoned for industrial use which may prohibit, or not permit, use of the land for residential purposes.

27.  Whether it is permissible to use land for residential purposes is not determined by any restrictions imposed by a land owner, for example, by way of a permitted use under a lease or covenant.

28.  Land will still be permissible to use for residential purposes even if that use is subject to local government requirements, such as obtaining approval or a permit. For example, it may be necessary to obtain local government development approval before a particular dwelling can be constructed. Despite the requirement for development approval, the residential zoned land is still land that is permissible to use for residential purposes.

29.  'Residential purposes' is not defined in the GST Act. It covers potential use of land for a residence or for residential accommodation. While 'residence' may suggest permanent or long-term occupation, 'residential accommodation' means living accommodation which does not require any degree of permanence of occupation.

30.  The definition of 'potential residential land' excludes land 'that contains any buildings that are residential premises'. In addition, section 14-250 does not apply where the land contains any building that is in use for a commercial purpose. What will be a 'building' depends on statutory purpose and context. Whether or not something is a 'building' which may satisfy subparagraph 14-250(2)(b)(ii) is a matter of fact and degree. To be a 'building' there must be a substantial structure having a roof, floor and walls which provides protection from the elements. It must be of sufficient permanence and be installed on and integrated to the site in question. Prefabricated and transportable structures may qualify, but a common metal shed without more does not meet these requirements.

31.  A building must also be 'in use for a commercial purpose'. This means that there must be a current, actual and ongoing 'use' established as a matter of fact, and that the use demonstrated is objectively 'for a commercial purpose' taking all the circumstances into account. If the building is not in use for a commercial purpose, section 14-250 may apply. Further assistance and guidance on these issues may be sought from the ATO on a case-by-case basis.

In this case, the property has recently been re-zoned as "residential general" by the local council. There are no structures located on the property. There is a dam located on the property. As a result of the rezoning the land would now be classed as potential residential land.

Question 2

Will the sale of the property by the Trust, be a taxable supply in accordance with section 9-5?

Answer

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

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 in 19XX 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 19xx as a vacant parcel of land. The property has not been used for any purpose since purchase.

The length of time pf ownership

The Trust has owned the property since 19xx. 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 property development or property sales of this nature.

Supplementary work on or in connection with the property realised

There has not been any supplementary work on or in connection with this property.

The circumstances that were responsible for the realisation

The Trustee of the Trust have decided to sell the property to assist the beneficiaries of the Trust. 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

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 sale of the property is not in the course or furtherance of the Trust's 'enterprise' for the purposes of GST. Therefore, the sale of the property will not be a taxable supply.

Question 3

Will the Trust be required to register for GST?

Answer

No. The Trust will not be required to register for GST in relation to the sale of the property.

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 the enterprise being carried on by the Trust. Therefore, the sale of the property is not taken into account in calculating the registration turnover of the Trust and, as a result, is not required to register for GST.

Question 4

Will the sale of the property be subject to the withholding provisions under section 14-250 of Schedule 1 to the TAA?

Answer

No. The sale of the property will be not subject to the GST withholding provisions under section 14-250 of Schedule 1 to the TAA.

As detailed above the Trust is not required to be registered for GST. As a result, the withholding provisions undersection 14-250 of Schedule 1 to the TAA will not apply to this property when sold.