Edited version of private advice

Authorisation Number: 1052214448310

Date of advice: 14 February 2024

Ruling

Subject:Enterprise

Question 1

Are you required to be registered for GST pursuant to section 23-5 of the A New Tax System (Goods and Services Tax Act) 1999(GST Act)?

Answer

No.

Question 2

Are you making a taxable supply pursuant to section 9-5 of the GST Act with the sale of your property consisting of 4 adjoining parcels of vacant land situated at XYZ?

Answer

No.

This ruling applies for the following periods:

date to date.

The scheme commences on:

date

Relevant facts and circumstances

Individual A and Individual B are registered for GST effective from DDMMYYYY, your late parents acquired property described as XYZ (the first parent title).

The first parent title consisted of 5 lots:

•         Lot 1;

•         Lot 2;

•         Lot 3;

•         Lot 3A; and

•         Lot 4.

Historically, the first parent title property had been used by your parents as their residence and to carry on sheep farming. Sometime after the passing of your parent A in YYYY, Individual A grazed their own sheep on the vacant lots until on or around their retirement in YYYY.

In recent years, excluding the past 12 months or so when the property has not been stocked, a neighbour grazed their sheep on the vacant farmland. However, no lease was in place and the neighbour was not charged to graze their sheep. The grazing arrangement helped to maintain the land.

In YYYY your parent B annexed Lot 3A (being the Lot containing the residence) from the other 4 Lots and sold it for $XX. On DDMMYY, the remaining 4 Lots were registered under a new title (the 2nd parent title).

Your parent B passed away on DDMMYY.

Pursuant to the terms of your late parent B's last will and testament, you inherited the Lots comprising the 2nd parent title.

On DDMMYY the 2nd parent title was transferred into your individual names as tenants in common each holding a 50% interest in the 4 Lots which consisted of vacant land with one Lot containing a dam (the Vacant Land).

Your intention for the Vacant Land at the time was to sell it, as you had both retired.

Since you acquired the Vacant Land, you have maintained it by cutting the grass which was then given away to the contractor who cut it to use as fodder for their own animals.

No works have been carried out since you have taken ownership of the Vacant Land and no activities related to any enterprise have been undertaken in relation to the Vacant Land.

In YYYY you engaged a real estate agent to sell the Vacant Land.

On DDMMYY you registered the partnership of Individual A and Individual B specifically for the purpose of disposing of the Vacant Land.

You registered for GST as it was your understanding that your sale of the Vacant Land would be a sale of commercial property and that the sale would be considered an enterprise and subject to GST.

On DDMMYY you entered into a contract to sell the Vacant Land. Settlement is due in YYYY.

The Purchaser does not intend to carry on a farming business on the Vacant Land. The Purchaser intends to subdivide and develop the Vacant Land, and to sell residential blocks.

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

Reasons for decision

Question 1

Are you required to be registered for GST pursuant to section 23-5 of the A New Tax System (Goods and Services Tax Act) 1999(GST Act)?

Answer

No.

Section 23-5 provides that you are required to be registered for GST if:

•         you are carrying on an enterprise; and

•         your GST turnover meets the registration turnover threshold.

Enterprise

The term 'enterprise' is defined in section 9-20 and includes (amongst other things) an activity, or series of activities, done:

•         in the form of a business;

•         in the form of an adventure or concern in the nature of trade.

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) the Commissioner provides advice on the meaning of the term 'enterprise' for ABN purposes. Goods and Services Tax Determination GSTD 2006/6; Goods and services tax: does MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999? provides that the discussion in MT 2006/1 equally applies to the term 'enterprise' as used in the GST Act and can be relied on for GST purposes.

Paragraph 170 of MT 2006/1 discusses that the phrase 'in the form of a business' is broad and has as its foundation the longstanding concept of a business. Section 195-1 of the GST Act defines the word 'business' to include 'any profession, trade, employment, vocation or calling, but does not include occupation as an employee'.

Paragraph 234 of MT 2006/1provides that a business generally includes trade engaged in, on a regular or continuous basis, while an adventure or concern in the nature of trade may include a one-off transaction that does not amount to a business, but which has the characteristics of a business deal.

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.

In the form of a business

Whilst there is no single test of whether a business is being carried on, paragraph 178 of MT 2006/1, with reference to 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 the form of an adventure or concern in the nature of trade

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 one-off or isolated transaction may constitute 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.

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 your activities involving the sale of the Vacant Land bare the hallmarks of a business or an adventure or concern in the nature of trade as described by MT 2006/1.

Your activities in respect to your supply of the Vacant Land were carried out to finalise your inheritance pursuant to your late parent B's last will and testament and were not done in carrying on an enterprise. As such, you would not have been required to register for GST pursuant to section 23-5 of the GST Act.

Question 2

Are you making a taxable supply pursuant to section 9-5 of the GST Act with the sale of your property consisting of 4 adjoining parcels of vacant land situated at XYZ?

Answer

No.

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.

As discussed above, we consider your sale of the Vacant Land was not made in the course or furtherance of an enterprise that you carry on. As paragraph 9-5(b) has not been satisfied, your supply of the Vacant Land will not be a taxable supply as defined.