Edited version of private advice

Authorisation Number: 1052094377498

Date of advice: 8 March 2023

Ruling

Subject: Taxable supply - sale of properties

Question

Will the sale of the properties constitute a taxable supply in accordance with section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No. The sale of the properties by the Trust will not be taxable supplies in accordance with section 9-5 of the GST Act.

This ruling applies for the following period:

Financial year ending 30 June 20XX

The scheme commences on:

The date this notice of decision is issued

Relevant facts and circumstances

The Trust currently operates a primary production business, which is run from another property not connected with the properties sold.

The Trust is registered for goods and services tax (GST).

The Trust acquired the properties in XXXX.

The properties have been held for a significant number of years.

The properties were acquired by the Trust as long-term investments.

No development plans have been submitted in relation to potential subdivision or development of the properties.

The properties have not been held for a commercial purpose and the properties have not been used as part of the primary production business.

The properties were sold in XXXX.

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

Reasons for decision

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 properties sold meet three of the provisions set out in section 9-5. They are, the supplies consist of properties located in an indirect tax zone, they were for consideration and the supplies were made by a supplier that is registered for GST.

Therefore, we are required to determine whether the supplies were made in the course or furtherance of an enterprise that the Trust carries on. If this was the case, the supply of the properties would satisfy all requirements of section 9-5 and would be taxable supplies.

The Trust currently holds an Australian Business Number (ABN) and have been registered for GST since XXXX. The Trust carries on a business of primary production and owns unrelated investment assets and property. The two properties sold, were not used for any income related purposes and have not been developed in any way.

As the transactions of selling the properties may be described as an isolated transaction, 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'. 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 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 vacant parcels of land. The properties have not been used for any income earning activities. No development approvals have been sought in relation to the properties.

The length of time pf ownership

The Trust has owned the properties for more than XX years.

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 or attempted to develop these properties and has not used these properties for any income related purpose.

The circumstances that were responsible for the realisation

It has been decided to sell the properties as the beneficiaries were seeking to simplify their affairs.

Motive

The motive for selling the property is due to the beneficiaries wanting to simplify their affairs. Although a profit may result from the sale of the properties, the length of time the properties have been held and the Trust's intentions in relation to the properties show that, on an objective assessment, the properties never had the characteristics of a trade asset.

Conclusion

Given the above, we do not consider the Trust's activity relating to the sale of the properties constitutes an adventure or concern in the nature of trade and, as such, the Trust did not sell the properties as part of the primary production business they currently carry on. The Trust is not carrying on an enterprise in relation to the selling of or development of property. Therefore, the sale of the properties does not meet the requirements under section 9-5 and was not a taxable supply.