Edited version of private advice

Authorisation Number: 1052249220766

Date of advice: 8 May 2024

Ruling

Subject: GST - sale of vacant land

Question

Will the sale of the vacant land situated at <address> (the Property) be 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 to DDMMYYYY

The scheme commenced on:

DDMMYYYY

Relevant facts and circumstances

You are not registered nor historically registered for GST.

You were previously registered for an Australian Business Number (ABN) on DDMMYYYY however the ABN was cancelled effective from DDMMYYYY.

The reason for the registration of an ABN was because you had entered into a contract to provide contractual services on a casual basis.

You ceased the contracting job during the financial year ended DDMMYYYY and no income had been earned under the ABN, therefore resulting in the subsequent cancellation of the ABN.

On DDMMYYYY, you purchased vacant land situated at X address (the Property).

The purchase price of the Property was $X amount.

The Property has a total area of approximately xx square metres, with approximately xx square metres available for building.

You intended to build a house and establish a family residence on the Property.

You were budgeting around $x amount to build a xx square metres residential dwelling.

The registration of the strata plans and strata title for the Property was estimated to occur around YYYY with construction on your Property to commence sometime in YYYY.

The registration process for the strata plan and strata title was significantly delayed due to the COVID-19 pandemic, with the final settlement of the Property occurring on DDMMYYYY.

As a result of the delay, you had incurred holding costs without generating any income from the Property.

You have consulted with various builders in the market regarding construction costs and have been advised that the estimated costs of a minimum xx metres residential dwelling according to the initial plan (with the remainder of the land being yard) would now be surpassing $x amount.

As such, due to the increase in the construction cost estimates, you are now seeking to sell the Property with the view to establish your family residence elsewhere with better affordability.

A potential buyer has been identified and has offered $x amount for the purchase of the Property, however the final price is still to be negotiated.

You have not previously owned land or a residence prior to purchasing 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 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 will be selling the Property for consideration and the Property is connected with the indirect tax zone as the Property is situated in Australia. However you are not registered for GST.

Therefore, it is now of relevance to determine whether the sale of the Property will be made in the course or furtherance of an enterprise that you carry on, and if so, as you are not registered for GST, whether you are required to be registered.

Enterprise

Subsection 9-20(1) provides, amongst other things, that an enterprise is 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.

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, does 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.

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

Paragraph 244 of MT 2006/1 explains that 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. Such transactions are of a revenue nature. However, the sale of the family home, car and other private assets are not, in the absence of other factors, adventures or concerns in the nature of trade.

Paragraph 245 of MT 2006/1 refers to 'the badges of trade' with paragraphs 247 to 257 discussing 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.

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 scheme) as opposed to the mere realisation of a capital asset.

In your case, you purchased the Property with the intention to build a residential dwelling on the vacant land for your family to reside in. However, due to various external factors such as the delay in the strata titling process and the increase in interest rates and building costs, you have decided to forego your initial intention and listed the Property for sale with a view to look for a new place of residence with better affordability.

Based on the above, in this case we do not consider that the activities leading up to the eventual sale of the Property will 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 were not done in carrying on an enterprise.

Conclusion

On the basis of the facts provided, you will not be carrying on an enterprise, nor will you be required to be registered for GST. As such, 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.