Edited version of private advice

Authorisation Number: 1052234221753

Date of advice: 3 April 2024

Ruling

Subject: GST - sale of real property

Question

Will the proposed sale of the properties be a taxable supply in accordance with section 9-5 of the GST Act?

Answer

No. The proposed sale of the properties will not be a taxable supply in under section 9-5 of the GST Act.

This ruling applies for the following periods:

Year ending 30 June 2024

Year ending 30 June 2025

Year ending 30 June 2026

Year ending 30 June 2027

Year ending 30 June 2028

The scheme commences on:

The date this ruling is issued.

Relevant facts and circumstances

You have an ABN but are not registered for GST.

You inherited the property containing an existing residential dwelling and when your father passed away and decided to purchase your mother's and sister's interests in XXXX.

You intended to live and work in the area but initially needed to lease the property out until you could afford to do so.

The property was leased out to a company until XXXX, which you then occupied as your primary place of residence.

You obtained a planning permit to develop a second dwelling (double story) to the rear of the property which and alterations to the existing dwelling.

The renovations on unit 1 consisted of restumping, replastering, painting incl replacing the kitchen, bathrooms and laundry, floor coverings, soft furnishings, rendering the outside including roof restoration and landscaping.

The reason for the subdivision of the property and construction of unit 2 was so your elderly mum could live in unit 1 and you could live in unit 2 on completion, as you wanted to look after your mum since your father passed away.

You mother has stayed in unit 1 from time to time and you sometimes holiday rent it to friends and family.

You are now looking to sell both unit 1 and unit 2 as you are looking at downsizing. You mum is elderly and she seldom comes to stay in unit 1 and wishes to remain living at her property, so you are now wishing to move closer to her.

Your involvement in the subdivision and property development was that of owner-builder.

You have not been involved or undertaken in any property subdivision or developments previously.

Relevant legislative provisions

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

The A New Tax System (Goods and Services tax) Act 1999 section 9-20

The A New Tax System (Goods and Services tax) Act 1999 section 23-5

Reasons for decision

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

a)    is made for consideration; and

b)    is made in the furtherance of an enterprise being carried on; and

c)    is connected with the indirect tax zone; and

d)    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.

If Unit 1 and Unit 2 were to be sold, you would satisfy the requirements under paragraphs 9-5(a) and 9-5(c) of the GST Act as you make the supply of the property for consideration; and the supply is connected with Australia as the property is located in Australia.

What remains to be determined is whether the proposed sale of Unit 1 and Unit 2 will be made in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b)), and whether you are registered or required to be registered for GST (paragraph 9-5(d)).

Enterprise

Section 9-20 of the GST Act provides that the term 'enterprise' includes, among 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;

•         on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.

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 the Tax Office view on the meaning of 'enterprise' for the purposes of entitlement to an ABN.

Goods and Services Tax Determination GSTD 2006/6 Goods and Services Tax: 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 applies equally to the term 'enterprise' as used in the GST Act and can be relied on the GST purposes.

Paragraphs 170 to 232 of MT 2006/1 discuss factors to consider when determining whether an activity or series of activities are done in the form of a business. Paragraph 178 of MT 2006/1 lists, with reference to Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production?, indicators of carrying on a business:

•         a significant commercial activity;

•         a purpose and intention of the taxpayer to engage in commercial activity;

•         an intention to make a profit from the activity;

•         the activity is or will be profitable;

•         the recurrent or regular nature of the activity;

•         the activity is carried on in a similar manner to that of other businesses in the same or similar trade;

•         activity is systematic, organised and carried on in a businesslike manner and records are kept;

•         the activities are of a reasonable size and scale;

•         a business plan exists;

•         commercial sales of product; and

•         the entity has relevant knowledge or skill.

Paragraph 179 of MT 2006/1 states that there is no single test to determine whether a business is being carried on. Whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing all the relevant indicators.

Application in your case

Given the above, we do not consider your activities in regard to renovating the existing dwelling and the construction of the new residential premises to have been done in the form of a business.

In the form of an adventure or concern in the nature of trade

Paragraph 234 of MT 2006/1 provides that ordinarily, the term 'business' would encompass trade engaged in, on a regular or continuous basis. However, an adventure or concern in the nature of trade may be an isolated or one-off transaction that does not amount to a business but which has the characteristics of a business deal.

Paragraphs 258 to 260 of MT 2006/1 provide that certain type of assets, such as rental properties, business plant and machinery, the family home, family cars and other assets are considered as investment assets. These assets are purchased with the intention of being held for a reasonable period of time, as income-producing assets or for the pleasure or enjoyment of the person. The mere disposal of these investment and private assets does not amount to trade. Assets can change their character from investment to trade, however these assets cannot be held at the same time for both purposes.

While an activity such as the selling of an asset may not of itself amount to an enterprise, account should be taken of the other activities leading up to the sale to determine if an enterprise is carried on.

Paragraph 262 of MT 2006/1 acknowledges that the question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions. Paragraph 263 continues stating that the issue to be decided is whether the activities being conducted are an enterprise in that they are of a revenue nature as they are considered to be activities of carrying on a business or an adventure or concern in the nature of trade (profit making undertaking or scheme) as opposed to the mere realisation of a capital asset.

Paragraphs 247 to 261 of MT 2006/1 outline some factors to determine whether the sale of an asset could be considered as a mere realisation of a capital or investment asset. The factors are:

•         length of period of ownership

•         frequency or number of similar transactions

•         supplementary work on or in connection with the property

•         circumstances that were responsible for the realisation, and

•         motive.

You resided in the existing residential premises (Unit 1) as your principal place of residence, during the renovations and upon completion of Unit 2 in XXXX, this became your principal place of residence.

You acquired the property in XXXX. The property contained an existing residential dwelling which you leased until XXX. You obtained a planning permit to carry out renovations of the existing dwelling and to build a new residential dwelling on the rear of the property. You resided in the existing residential dwelling (Unit 1) as your principal place of residence, during the renovations. On completion of Unit 2, this then became your principal place of residence. Your elderly mum has stayed in Unit 1 from time to time.

Your initial intention was for your elderly mum to live in Unit 1 as her principal place of residence and you would reside in Unit 2 as your principal place of residence and look after her. As your mum rarely stays in Unit 1 and continues to live at her residence, you are looking at downsizing and proposing to sell both Unit 1 and Unit 2, so you can move closer to Melbourne to look after your mum.

You have stated that you have not been previously involved in or carried out any property development work.

Given the facts of this case, we do not consider your activities to constitute an adventure or concern in the nature of trade and as such are not an 'enterprise' for the purposes of GST. Therefore, the sale of Unit 1 and Unit 2 would be considered a mere realisation of a capital asset.

GST registration

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

As mentioned above, it is considered that the sale of the property would be a mere realisation of a capital asset and would not constitute an enterprise for GST purposes. As such you are not required to be registered for GST.

Conclusion

Given the above, we consider that your activities in relation to the properties will not be done in the course or furtherance of an enterprise you carry on and you are neither registered nor required to be registered for GST. All of the requirements of section 9-5 of the GST Act as listed above have not been met. As such, the proposed sale of the properties will not be a taxable supply and you will not be liable for GST on the sale in accordance with section 9-40.