Edited version of private advice

Authorisation Number: 1052185098428

Date of advice: 26 October 2023

Ruling

Subject: Taxable supply - sale of property

Question 1

Was the sale of the property a taxable supply in accordance with section 9-5?

Answer

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

This ruling applies for the following period:

Financial year ending 30 June 2024

The scheme commences on:

The date this private ruling is issued

Relevant facts and circumstances

You have an Australian Business Number (ABN), but you are not registered for goods and services tax (GST).

You work as a civil trades person.

You took out an investment loan to fund an investment property.

You entered into a contract with a third party to purchase land as a house (to be constructed) and land package.

The construction of the house was completed in or around XX XXXX with the occupancy certificate being issued on XX XXXX.

Your intention at the time you entered into the contract was to lease the completed property for investment purposes. Due to the increased costs over the period in which it took to complete the property, you could no longer afford the ongoing costs and decided to sell.

You placed the property on the market for sale soon after completion.

You entered into a contract of sale on XX XXXX, with settlement occurring on XX XXXX.

An amount of GST withholding was withheld at settlement and remitted to the ATO by the purchaser.

The contract of sale did not state that the sale of the property was subject to GST.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

Reasons for decision

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

(1)          is made for consideration; and is made in the furtherance of an enterprise being carried on; and

(2)          is made in the 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 your case, the property sold was located in the indirect tax zone and the supply was for consideration. Therefore, the sale of the property would satisfy two elements outlined above (1) and (3). Accordingly, we need to determine whether the other two elements (2) and (4) would be satisfied. If this were the case the sale of the property would satisfy all of the requirements under section 9-5 and would be a taxable supply.

You have stated that you are a civil trade person and, although you hold an ABN, you are not registered for GST and you are not carrying on an enterprise.

However, because 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 to '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

You entered into a contract of sale in relation to a house and land package with the intention of leasing the finished property to obtain investment income. Your intention was not to sell the property, however, due to the increased costs over the period it took to complete the property you needed to sell the property to pay out the debt.

The length of time of ownership

You entered into the contract for the house and land package in XX XXXX, however the house was not completed until XX XXXX. You placed the property on the market to sell shortly after completion.

The frequency and number of similar transactions

You stated that this is a one-off transaction and that you are not in the business of property development.

Supplementary work on or in connection with the property realised

The property has never been leased.

The circumstances that were responsible for the realisation

You have decided to sell the property in order to pay out the debt and owing due to being unable to afford the ongoing costs.

Motive

The motive for acquiring the property was as an investment and entering into an investment loan agreement with the lending institution supports this intention. You are only selling due the increased costs and not being able to afford the repayments. Although a profit may result from the sale of the property, your intention in relation to the property shows that, on an objective assessment, the property never had the characteristics of a trade asset.

Conclusion

Given the above, we do not consider that your activity of selling the property would constitute an adventure or concern in the nature of trade and, as such, was not sold in connection with an enterprise being carried on by you. Therefore, the sale of the property does not meet the requirements under section 9-5 and was not a taxable supply.