version of private advice

Authorisation Number: 1052246148983

Date of advice: 24 June 2024

Ruling

Subject: GST and sale of property

Question 1

Is the sale of the property a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and subject to goods and services tax (GST)?

Answer

No, the sale is not a taxable supply and is not subject to GST.

Question 2

If the sale of the property is a taxable supply, can the margin scheme apply in working out the amount of GST on the supply under Division 75 of the GST Act?

Answer

As the sale of the property will not be a taxable supply, the question regarding the margin scheme will not be applicable.

This ruling applies for the specified period.

Relevant facts and circumstances

In month 20XX, you signed a contract and paid the deposit for a new residential house and land (the property). You have provided us with a copy of the executed contracts for the land and build of the new house. There are separate contracts for the land and the house.

You are listed as the registered proprietor on title for the property.

You initially thought that you were buying a house and land package when you paid for the deposit. You ended up paying for the land and house separately, but you did not engage a builder to construct the house as it was already part of the deal that you signed up for when you purchased the land.

You are employed full-time in fields that do not relate to property development. You have never been involved in property development.

You paid for the deposit with your savings and the balance with a mortgage.

You intended to build new residential premises for investment purposes to rent out the property long-term. You were initially advised that settlement would occur in month 20XX, and the expected rental income would be $Y per week. You were also told that there would be minimal investor ownership as most properties would be owner occupied.

There were delays (in the subdivision and building) and construction of the house was completed in 20XX.

In early 20XX, you discovered that the development was larger than expected with several thousand homes to be built. The estimated maximum rental is $P per week and the estimated re-sale price is $XXX,000 - $YYY,000. You wanted to purchase your own principal place of residence and could not do so with the current loans on the investment properties and lack of savings for a deposit. You engaged a property specialist who advised to sell on completion. You were told that the property was not a viable investment for your future plans and will not perform as well as you expected when you first paid the deposit in several years ago.

Now, you would like to sell the house and land after completion.

You are currently not registered for GST.

You have provided a summary of the major costs that were incurred and have calculated expenses to date and estimate a capital loss of up to $QQ,000.

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

A New Tax System (Goods and Services Tax) Act 1999 section 23-10

Reasons for decision

Question 1

Summary

No GST is payable on the sale of the property as the supply will not be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) because on the facts provided, you are not registered and will not be required to be registered for the goods and services tax (GST) at the time of sale.

Detailed reasoning

Taxable supply

You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which states:

You make a taxable supply if:

a)    you made 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 with the indirect tax zone; and

d)    you are *registered or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

(*Denotes a term defined in section 195-1 of the GST Act)

All the above requirements must be met for a supply that you make, to be a taxable supply.

The requirements of paragraphs 9-5(a) and 9-5(c) of the GST Act are satisfied since the property will be sold for consideration and the property is connected with the indirect tax zone (i.e., the property is located in Australia).

We now need to consider:

•         whether the sale of the property will be supplied in the course or furtherance of an enterprise carried on by you (paragraph 9-5(b) of the GST Act); and

•         whether you would be required to be registered for GST at the relevant time (paragraph 9-5(d) of the GST Act).

Enterprise

Subsection 9-20(1) of the GST Act provides that the term 'enterprise' includes, among other things, an activity or series of activities done:

a)    in the form of a business; or

b)    in the form of an adventure or concern in the nature of trade; or

c)    on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property; or

...

However, subsection 9-20(2) of the GST Act contains a number of exclusions to the definition of enterprise.

Paragraph 9-20(2)(b) of the GST Act provides that an activity or activities done as a private recreational pursuit or hobby are not enterprises, and paragraph 9-20(2)(c) of the GST Act provides that an enterprise does not include an activity, or series of activities, done by an individual without a reasonable expectation of profit or gain.

Whether or not an activity, or series of activities, amounts to an enterprise is a question of fact and degree having regard to all the circumstances of the case.

The question of whether an entity is carrying on an enterprise is explained 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 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 (GSTD 2006/6)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 10 of GSTD 2006/6 provides that 'an activity of series of activities' means any act of series of acts that an entity does. The acts can range from a single act or undertaking, to groups of related activities, to the entire operations of the entity. An enterprise could therefore incorporate a single or one-off transaction such as the building and sale of real property.

GST registration

In accordance with section 23-5 of the GST Act, an entity is required to be registered for GST if:

a)    it is carrying on an enterprise; and

b)    its GST turnover meets the registration turnover threshold.

In accordance with section 23-10 of the GST Act, an entity may be registered for GST if:

a)    it is carrying on an enterprise (whether its GST turnover is at, above or below the registration turnover threshold), or

b)    it intends to carry on an enterprise from a particular date.

How this applies to your circumstances

Based on the facts presented to us, we have concluded that the activities carried out, leading to the sale of the property will not amount to the carrying on of a property development enterprise for GST purposes.

Hence, the requirement of paragraph 9-5(b) of the GST Act will not be satisfied under these circumstances as the sale will not be made in the course or furtherance of an enterprise.

As the sale of the property will not be made in the course or furtherance of an enterprise that you carry on, you will not be required to be registered for GST under section 23-5 of the GST Act. Since you are also not currently registered for GST, paragraph 9-5(d) of the GST Act will also not be met.

Therefore, as paragraphs 9-5(b) and 9-5(d) have not been satisfied, you will not be making a taxable supply in relation to the sale of the property. As a result, no GST is payable by you on the sale of the property.

Note that: The sale of the property will not be a taxable supply in this instance. However, if you carry on similar activities in the future, the outcome for GST purposes may be different.

Question 2

You can apply the margin scheme if the sale of the property is a taxable supply, and the other requirements of Division 75 are satisfied. We have determined in Question 1 that the sale of the property will not be a taxable sale.

Therefore, the margin scheme will not apply to the sale of the property.