Edited version of private advice

Authorisation Number: 1052248359213

Date of advice: 8 May 2024

Ruling

Subject: GST - sale of vacant land

Question

Is the sale of the vacant land situated at <address> (the Property), a taxable supply as defined in section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

This ruling applies for the following periods:

DDMMYYYY - DDMMYYYY

The scheme commenced on:

DDMMYYYY

Relevant facts and circumstances

You were previously registered for GST from DDMMYYYY and carried on an enterprise unrelated to the property or property development industry.

Your GST registration was cancelled on DDMMYYYY as you ceased your enterprise due to medical issues.

Since the financial year ended DDMMYYYY you have done some XXXX work sporadically in your spouse's workshop under a contract but the income you had received was below the income tax threshold so you were not eligible to pay income tax.

Besides the XXXX work, you have not undertaken any full-time employment.

You had received a disability pension since DDMMYYYY however payments ceased in DDMMYYYY because your spouse returned to work.

You have subsequently reapplied for the disability pension in DDMMYYYY and after successfully undergoing a medical assessment, your application was granted effective from DDMMYYYY.

You have never engaged in activities related to property development in the past (or operated in any manner that is similar).

On DDMMYYYY, you entered into a contract to purchase a block of vacant land situated at XX address (the Property) with the intention to build a residential house for retirement purposes and paid $X amount as a deposit.

On DDMMYYYY you paid the full amount of $X amount for the Property, which includes costs and disbursements such as electronic settlement fee, registration of title and stamp duty.

However, due to family and other commitments, you decided not to proceed with your plans to build the retirement house and decided to list the Property for sale.

On DDMMYYYY, contracts for the sale of the Property were signed.

On DDMMYYYY, settlement of the Property occurred in full for the amount of $X amount.

The Property was sold as is, without any improvements being made on the vacant land.

You discussed the transaction with your accountant who advised that your circumstances appeared to be a money-making or business venture and as such GST would apply.

Your accountant subsequently contacted the ATO on DDMMYYYY and DDMMYYYY and requested the re-activation of your GST role for the period DDMMYYYY to DDMMYYYY.

On DDMMYYYY you lodged your monthly Business Activity Statement (BAS) for DDMMYYYY reporting GST payable on the sale of the Property and also claiming an input tax credit in respect of your original purchase of the Property.

On DDMMYYYY, you contacted the ATO seeking clarification regarding GST on your sale of the Property and were provided with general guidance. You subsequently lodged a private ruling application seeking certainty on this issue.

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 9-40

Reasons for decision

Section 9-40 provides that you will be liable to pay the GST payable on any taxable supply that you make.

Section 9-5 provides that you will be making a taxable supply if:

(a)          you make the supply for consideration;

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

(c)           the supply is connected with 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.

Based on the facts of the case, you have sold the Property for consideration and the Property is connected with the indirect tax zone (as the Property is situated in Australia). You were re-registered for GST by your accountant for the period DDMMYYYY to DDMMYYYY during which time, settlement of the Property occurred. As such, paragraphs 9-5(a), 9-5(c) and 9-5(d) are satisfied. The sale of the Property will neither be GST-free nor input taxed.

Therefore, it is now of relevance to determine whether the sale of the Property was made in the course or furtherance of an enterprise that you carried on.

Are you carrying on an enterprise?

In accordance with section 9-20 of the GST Act, an enterprise includes an activity, or series of activities, done in the form of:

•         a business (paragraph 9-20(1)(a)); or

•         an adventure or concern in the nature of trade (paragraph 9-20(1)(b)).

Furthermore, 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 Commissioner's view on the meaning of 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 applies equally to the term 'enterprise' as used in the GST Act and can be relied upon for GST purposes.

Paragraphs 177 to 179 of MT 2006/1 discusses the main indicators of carrying on a business, and state:

Indicators of a business

177. To determine whether an activity, or series of activities, amounts to a business, the activity needs to be considered against the indicators of a business established by case law.

178. TR 97/11 discusses the main indicators of carrying on a business. Based on that discussion some indicators are:

•        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.

179. There is no single test to determine whether a business is being carried on. Paragraph 12 of TR 97/11 states that '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.' TR 97/11 can be referred to for a fuller discussion on whether a particular activity constitutes the carrying on of a business.

Given the facts of this case, we consider that your activities, including the sale of the Property by you, do not display the characteristics of a 'business' as listed above.

As the transaction may be described as a one-off, we also need to consider the extended definition of 'enterprise' and whether this activity falls within the scope of an adventure or concern in the nature of trade. 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 to 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 connection with the property realised

•         the circumstances that were responsible for the realisation; and

•         motive.

In your case, you purchased the vacant land with the intention to build a residential house on the Property for retirement purposes. However, due to family and other commitments, your intention changed and you decided to not proceed with your initial plans and listed the Property for sale. The Property was subsequently sold without any further work being done on the Property.

Based on the above, in this case we do not consider that the activities that led to the sale of the Property amount to an adventure or concern in the nature of trade as you are merely disposing of a private asset due to a change in circumstances. As such, we consider your activities in respect of the Property, including both the purchase and sale of the vacant land (Property), were not done in carrying on an enterprise.

Conclusion

As you are not carrying on an enterprise in relation to the sale of the Property, paragraph 9-5(b) is not satisfied and the sale of the Property will not be a taxable supply as defined in section 9-5.

Please note that in the case you conduct similar activities in the future, the outcome may differ depending on the facts and overall impression at that time.