Edited version of your private ruling

Authorisation Number: 1052127397937

Date of advice: 25 July 2023

Ruling

Subject: GST - transfer of interest in property

Question 1

Are you making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you transfer to your relative, S, your 50% interest in townhouse B at XXX Street (Lot B)?

Answer

No. For a sale to be a taxable supply all the requirements of section 9-5 of the GST Act must be satisfied.

One of the requirements of section 9-5 of the GST Act is that the sale is made in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b) of the GST Act).

In your case, based on the information provided, the transfer of your interest in Lot B is not made in the course or furtherance of an enterprise that you carry on as it is a mere realisation of a private asset. The transfer of your interest in Lot B therefore is not a taxable supply as it does not meet all the requirements of section 9-5 of the GST Act.

Question 2

Are you making a taxable supply under to section 9-5 of the GST Act when you sell townhouse A at XXX Street (Lot A)?

Answer

No. Based on the information provided, the proposed sale of Lot A is not made in the course or furtherance of an enterprise that you carry on as it is a mere realisation of a private asset. The proposed sale of Lot A therefore is not a taxable supply as it does not meet all the requirements of section 9-5 of the GST Act.

This private ruling applies for the following period:

1 July 2023 to 30 June 2027

Relevant facts and circumstances

S purchased XXX Street a number of years ago and has lived there since. You lived there for a number of years and rented after that until the end of last year.

A few years ago, S commenced investigation to knock down the main residence at XXX Street and replace it with two townhouses, due to costly renovations required to keep the property safe and liveable long-term. S's intention was to participate in a joint venture with a builder who would build a new home for S in return for the other townhouse.

XXX Street had a specified total land area and was zoned residential.

In Year 20AA a planning permit was endorsed.

You provided drawings showing the building plans for the townhouses on Lot A and Lot B.

In the middle to end of Year 20AA, a falling out with the builder occurred.

In Year 20BB after a lengthy search for another builder willing to enter into a joint venture, you decided that you would work with S to build two new homes one for each of you. You were to live in Lot A and S in Lot B.

Once agreed, the remainder of Year 20BB was spent finding a new builder, finalising drawings, abolishing services, commencing demolition and finalising lending to complete the project.

Once details were finalised, in early Year 20CC, you acquired 50% interest in XXX Street. No funds were exchanged between you and S and only the costs of transfer such as legal fees were paid by you.

The old house was demolished in early Year 20CC.

A few months later, a new certificate of title was issued showing you and S as joint owners each with a 50% interest in XXX Street.

In the middle of Year 20CC a building contract was signed with a Contractor.

A month later, construction commenced.

By the end of Year 20CC, the contact person in the Contractor's business had disappeared so you and S contacted the Contractor who then picked up the project in late Year 20CC.

Between the middle and end of Year 20DD there was limited progress due to COVID, with delays due to defective roofing, supply shortages, lack of willing tradies and poor organisation from the builder.

Between late Year 20DD and early Year 20EE there was little progress on either townhouse. A site meeting was held to go through the defective and incomplete work required to complete the fixing stage. You and S tried to support the builder and paid for building materials (for example tiles) to enable further work to be completed, yet no other work was completed during this time.

In early Year 20EE an email was received from the Contractor saying they were stopping work due to lack of payment.

Your solicitors contacted the Contractor with regards to their cease work outlining your position. At this stage the project was over a year overdue with obvious defects and incomplete work for the stage being claimed for.

The Contractor filed for voluntary administration with ASIC.

In the middle of Year 20EE, you and S engaged a building inspector to do a thorough review of the entire site to determine what defects needed to be rectified and the extent of incomplete works in order to submit an insurance claim.

Insurance claims for both townhouses were submitted.

Towards the end of Year 20EE, the Insurer came back suggesting getting quotes from prospective builders on the claims that had been accepted.

In late Year 20EE the Insurer provided a preliminary response highlighting the insurance claims were successful enabling the bank to loan you and S the additional capital needed to complete the project.

In early Year 20FF, the New Builder commenced construction and throughout the year rectified all defective works and completed construction.

In late Year 20FF, development activities were completed with two double-storey townhouses built side by side. A certificate of occupancy was issued, and you and S moved into your respective homes in Late Year 20FF.

The total cost of the development activities is over a million dollars comprising:

•                     Land transfer

•                     Plans and Designs

•                     Demolition

•                     Building costs Less builders insurers payout

•                     Land tax

•                     Lighting

•                     Interest on construction loans (to date)

•                     Connections

•                     Town planning/subdivision

•                     Building conveyancing and inspections

•                     Heating, cooling and appliances

The development activities were funded by savings and a construction loan in joint names:

•                     Loan 1 was a construction Loan with the Bank to construct both townhouses. The loan term was 30 years. This loan has been closed and replaced with Loan 2.

•                     Loan 2 is a construction loan with the Bank to complete construction of both townhouses and remediate defective works. The loan term is 30 years.

You are making the loan repayments.

You and S are working as employees. You and S do not carry on any enterprise activities either individually or jointly.

You and S have not claimed any income tax deductions on any costs or interest on loans on the property.

You and S have not previously undertaken any subdivision or land development activities and will not undertake any such activities in the future.

Currently you and S each have a 50% interest in Lot A and Lot B. You intend to change the ownership interests through transfer which would result in you owning 100% of Lot A and S owning 100% of Lot B. You expect the transfer of interests to be effected after receipt of this private ruling. At this stage, there will be no other consideration for the transfer of interests.

Currently you are occupying Lot A and do not intend to rent. You had made the choice to treat Lot A as your main residence before your occupation of it began and have not treated any other dwelling as your main residence.

Additional costs associated with the delays, changing builders and remediating defective works total a few hundred dollars. This coupled with increasing interest rates may mean one townhouse may need to be sold. You are considering your option of selling Lot A once you obtain 100% interest in Lot A, as the increase in interest rates is making it harder to retain. You intend to continue to occupy the premises and vacate prior to settlement.

Lot A is not currently on the market 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.