Edited version of private advice

Authorisation Number: 1052099267133

Date of advice: 22 March 2023

Ruling

Subject: Carrying on an enterprise

Question 1

Is the Trust carrying on an enterprise for the purposes of section 9-20?

Answer

Yes. The Trust has stated that they carry on an enterprise.

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 not be a taxable supply in accordance with section 9-5.

Question 3

Is the Trust required to be registered for GST as a result of the sale of the property?

Answer

No. The Trust is not required to be registered for GST as a result of the sale of the property. However, if the Trust's current turnover or projected turnover exceeds the GST turnover threshold (currently $75,000), in relation to other activities being carried on by the Trust then they will be required to be registered for GST.

This ruling applies for the following periods:

Financial year ending 30 June 20XX

Financial year ending 30 June 20XX

Financial year ending 30 June 20XX

The scheme commences on:

The date this notice of decision is issued

Relevant facts and circumstances

The Trust have held an Australia Business Number (ABN) since XXXX but is not currently registered for GST.

The Trust makes other supplies as part of their enterprise.

The Trust purchased a vacant plot of land (the property) with the intention of building a residential premises, for lease.

The property settled on XXXX.

The Trust obtained a new home proposal from a builder to construct the residential premises, however the increased cost to build the residence exceeded the original budget allocated for this project. As a result, the Trust has decided to sell the undeveloped property without going ahead with the construction.

The Trust has not previously owned any other properties or previously engaged in property development or buying and selling of properties.

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

Reasons for decision

Question 1

The Trust has held an ABN XXXX; however, the Trust is not registered for GST. The Trust carries on an enterprise of providing services. Therefore, the question of whether the Trust is carrying on an enterprise need not be addressed due to the fact that the Trust has stated that an enterprise is being carried on.

The question is whether the sale of the property forms part of the enterprise currently being carried on. This will be addressed below.

Question 2

Under section 9-5, an entity makes a taxable supply where the supply:

1.    is made for consideration; and

2.    is made in the course or furtherance of an enterprise being carried 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, were the property to be sold, it would meet two of the provisions set out in section 9-5. They are, the supply would be for consideration, and the property is located in the indirect tax zone.

Therefore, we are required to determine whether the supply of the property would be in the course or furtherance of the enterprise the Trust carries on and whether, as a consequence, the Trust is required to be registered for GST. If this was the case, the supply of the property would satisfy all requirements of section 9-5 and would be a taxable supply.

As detailed above, the Trust carries on an enterprise of providing services. The property in question, although initially intended to be developed into a leased residential premises, has not been used for any income producing activities to date.

As the transaction of selling a property 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 'the badges of trade' while paragraphs 247 and 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 conjunction with the property realised

•         The circumstances that were responsible for the realisation; and

•         Motive.

The subject matter of realisation

The Trust acquired the property as a vacant plot with the intention of building a residential property to lease.

Although a new home proposal was sought and obtained from a builder, no construction has commenced on the property.

The length of time of ownership

The Trust has only owned the property since XXXX when settlement occurred.

The frequency and number of similar transactions

The Trust has never undertaken transactions of this nature in the past which involved the buying and selling of land or the development of land.

Supplementary work on or in connection with the property realised

No activity has occurred on the property. No income has been received in relation to the property.

The circumstances that were responsible for the realisation

The Trust has decided to sell the property as the cost of the new house proposal obtained from the builder exceeded the budget allocation for the intended rental property.

Motive

The motive for selling the property is due to the increased cost of construction. Although a profit may result from the sale of the property, 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 activity of selling the property would constitute an adventure or concern in the nature of trade and, as such, when the property is sold it would not be in connection with the enterprise the Trust is carrying on. Therefore, the sale of the property does not meet the requirements under section 9-5 and will not be a taxable supply.

Question 3

Section 23-5 provides that you are required to be registered for GST if you carry on an enterprise and your GST turnover meets the turnover threshold (currently $75,000).

As it is considered that the sale of the property will not be in the course or furtherance of the enterprise being carried on by the Trust, the proceeds of the sale will not be required to be included in the Trust's turnover calculation. As a result, the selling of the property will not require the Trust to register for GST.