Edited version of private advice

Authorisation Number: 1052187390674

Date of advice: 01 November 2023

Ruling

Subject: GST - settlement

Question 1

Are you making a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax Act) 1999 (GST Act) when you sell your property consisting of vacant landsituated at Lot XX?

Answer

No.

Question 1

Are you required to give notification to the purchaser pursuant to subsection 14-255(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA)?

Answer

Yes, however the recipient is not required to withhold an amount of GST pursuant to section 14-250 of Schedule 1 to the TAA.

This ruling applies for the following periods:

Year ended 30 June 2024 to year ended 30 June 2027.

The scheme commences on:

1 November 2023.

Relevant facts and circumstances

This private ruling is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this private ruling has no effect, and you cannot rely on it. The attached fact sheet has more information about relying on your private ruling.

You are not registered for GST and you are not involved in running any type of business.

On XX/XXXX, you purchased with your late spouse XXXX, the lot comprising vacant land adjacent to your home and situated at Lot XX (the property).

The property is zoned for residential use.

Your original intention was for family members to build their homes next to yours; however, this did not eventuate.

After the death of your spouse in XX/XXXX, you became the sole owner of the property.

In recent years, you have found it increasingly difficult to maintain the property and you now wish to sell it.

The property has never been used for business purposes or for any other income-producing activities.

You have not previously been involved in purchasing and developing property.

You did not subdivide the property at any stage.

You do not intend to develop the property prior to its proposed sale.

The property has never been leased and you have never advertised the property for lease.

Although you did for a time permit a neighbour to graze some of his sheep on the property, this was a private arrangement. You did not charge your neighbour for the use of the land, and you did not enter into any form of lease with him.

Having the sheep on the property helped you to better manage the land by keeping the grass and weeds down, however you unexpectedly incurred expenses when you needed to supply water for your neighbour's sheep. You consequently terminated the private arrangement and decided to sell the property.

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

Taxation Administration Act 1953 subsection 14-255(1) schedule 1

Taxation Administration Act 1953 section 14-250 schedule 1

Reasons for decision

Question 1

Are you making a taxable supply pursuant to section 9-5 of the GST Act with the proposed sale of your property consisting of vacant land situated at Lot XX?

Detailed reasoning

Taxable supply

Section 9-5 of the GST Act provides that you make a taxable supply if:

(a)    you make the supply for consideration; and

(b)    the supply is made in the course or furtherance of an enterprise that you carry on; and

(c)     the supply is connected to the indirect tax zone (Australia); and

(d)    you are 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 to be sold is located in the indirect tax zone and the supply will be for consideration. Therefore, the sale of the property would satisfy (a) and (c) outlined above. Accordingly, we need to determine whether the other two elements, (b) & (d), will 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.

Enterprise

The Commissioner in 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 advice on the meaning of the term 'enterprise' for GST purposes.

According to MT 2006/1, a business generally includes a trade that is engaged in on a regular or continuous basis, while an adventure or concern in the nature of trade includes a commercial activity that does not amount to a business, but which has the characteristics of a business deal. Isolated or one-off transactions will fall into this category.

The use of the words 'in the form of' before 'business' or 'an adventure or concern in the nature of trade' has the effect of extending the meaning of 'enterprise' beyond entities carrying on a business or an adventure or concern in the nature of trade. Despite this, the focus is on determining the factors indicating a business.

Whilst there is no single test of whether a business is being carried on, Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? (TR 97/11), provides the main indicators of carrying on a business. These indicators include:

•          a significant commercial activity;

•          the purpose and intention of the taxpayer in engaging in the activity;

•          an intention to make a profit from the activity;

•          the activity is or will be profitable;

•          repetition and regularity of activity; and

•          the activity is organised and carried on in a businesslike manner.

In your case, the proposed sale of your property does not bear the hallmarks of a business as described by TR 97/11.

MT 2006/1 also discusses isolated transactions and sales of real property, and at paragraph 265, it presents a list of factors which, if present, may be an indication that a business or an adventure or concern in the nature of trade is being carried on. Those factors are:

•          there is a change of purpose for which the land is held;

•          additional land is acquired to be added to the original parcel of land;

•          the parcel of land is brought into account as a business asset;

•          there is a coherent plan for the subdivision of the land;

•          there is a business organisation - for example a manager, office, and letterhead;

•          borrowed funds financed the acquisition or subdivision;

•          interest on money borrowed to defray subdivisional costs was claimed as a business expense;

•          there is a level of development of the land beyond that necessary to secure council approval for the subdivision; and

•          buildings have been erected on the land.

Again, these factors must be considered as a whole to assess the isolated nature of the activities to determine whether they may be business-like.

In your case, we do not consider that the one-off supply made from the proposed sale of your property would be made in the course or furtherance of an enterprise but would be a private sale.

Question 2

Are you required to give notification to the purchaser pursuant to subsection 14-255(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA)?

Detailed reasoning

GST withholding at settlement

Paragraph 15 of Law Companion Ruling 2018/4 - Purchaser's obligation to pay an amount for GST on taxable supplies of certain real property (LCR 2018/4) lists the circumstances where a vendor is not making a taxable supply. It reads:

A purchaser only has a GST withholding obligation when a vendor is making a taxable supply. A vendor will not be making a taxable supply in situations including:

•         where the vendor is not registered for GST and not required to be registered for GST as the sale is not in the course or furtherance of an enterprise

•         the sale of residential premises is input taxed because they are not 'new residential premises' (refer to paragraph 18 of this Ruling), or

•         the sale is a GST-free supply, for example as part of a GST-free supply of a going concern or GST-free farmland.

Paragraph 59 of LCR 2018/4 states that if the vendor is not registered or required to be registered for GST, they simply state that the purchaser is not required to make a payment.

If the seller of a property is not carrying on an enterprise relating to the property being sold they will not be registered or required to be registered for GST in relation to the supply of the property and the supply will not be a taxable supply.

Summary

The proposed sale of your property consisting of vacant land situated at Lot XX will not be a taxable supply.

You are not required to be registered for GST for this purpose.

You will be required to give notification to the purchaser that no GST needs to be withheld from the purchase price at settlement, as no GST will be payable on the sale.