Edited version of private advice

Authorisation number: 1052352516242

Date of advice: 28 January 2025

Ruling

Subject: GST - sale of property

Question

Will the sale of the property qualify as a taxable supply in accordance with section 9-5?

Answer

No. The sale of the property will not qualify as a taxable supply as all of the requirements of section 9-5 are not satisfied.

This ruling applies for the following period:

Year ending 30 June 20YY

The scheme commences on:

DD MM YYYY

Relevant facts and circumstances

You purchased a residential property in August XXXX.

You do not hold an ABN.

The property was your primary residential premises.

In XXXX you began considering the options for renewing the home. It was agreed that the existing home would be demolished, and two townhouses constructed.

When completed, you intended to reside in one townhouse as your primary residence.

The second townhouse (the property) was to be retained as an investment property.

Construction was completed in XXXX. Once completed you moved into one of the townhouses and the other one, the property was leased through an agent.

In XXXX, you required funds and sold the rental 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.

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

Reasons for decision

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

1.            is made for consideration; and

2.            is made in the course or furtherance of an enterprise being carried on; and

3.            is connected with the indirect tax zone; and

4.            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.

In this case, the property sold was located in the indirect tax zone and was for consideration. Therefore, two of the elements (1&3) of section 9-5 are satisfied in relation to the sale of the property. Accordingly, we need to determine whether the other two elements (2&4) would be satisfied. If this were the case, the sale of the property would satisfy all of the requirements under section 9-5 and would qualify as a taxable supply.

You were carrying on a leasing enterprise, consisting of input taxed supplies of residential premises, prior to selling the property. You were not registered or required to register for GST due to the type of supplies that you were making, as input taxed supplies are excluded from the GST turnover threshold.

Next, we need to determine if the selling of the property by you was part of the leasing enterprise that you were carrying on.

Whether the sale of the property will be in the course of the enterprise that you carry on.

Goods and Services Tax Ruling GSTR 2004/8 Goods and services tax: when does an entity have a decreasing adjustment (GSTR 2004/8), considers the requirement in paragraph 9-5(b) that the supply is made in the course or furtherance of an enterprise. Paragraphs 28 and 29 state:

28. For the sale of a thing to be made in the course or furtherance of your enterprise, the sale of the thing must have a connection with your enterprise. Whether a connection between the sale of the thing and your enterprise exists will depend on the facts and circumstances. The Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 states:

'In the course or furtherance' is not defined but is broad enough to cover any supplies made in connection with your enterprise. An act done for the purpose or object of furthering an enterprise, or achieving its goals, is a furtherance of an enterprise although it may not always be in the course of that enterprise. 'In the course or furtherance' does not extend to the supply of private commodities, such as when a car dealer sells his or her own private car. See Case N43 (1991) 13 NZTC 3361.

29. Given the broad meaning of 'in the course or furtherance', a sale of a thing is capable of being made in the course or furtherance of an enterprise regardless of the extent to which it has a connection with the enterprise, so long as it has some connection. The GST Act does not require that the thing must be applied primarily or principally in carrying on the enterprise for the supply of the thing to be in the course or furtherance of an enterprise. Accordingly, a connection between the sale of the thing and your enterprise exists even if, at the time of its sale, the thing is applied in carrying on the enterprise to a minor or secondary extent.

Paragraph 30 of GSTR 2004/8 lists the following characteristics which stronglyindicate that a sale of a thing has a connection with an enterprise:

•                     at the time of sale it formed part of the assets of your enterprise (for example, it is trading stock or a depreciable asset for income tax purposes);

•                     at the time of sale it was applied in carrying on your enterprise to at least some extent; and

•                     it is sold as a transaction of your enterprise.

Each of these points will indicate a connection, and not all of the points need to be satisfied.

In this case you sold a property which related to the leasing enterprise being carried on. However, you were not registered for GST while carrying on the leasing enterprise. The property was not sold as part of the leasing enterprise that has now ceased.

As a result, element 2 of section 9-5 will not be met.

We now need to determine whether the sale of the property will qualify as an adventure or concern in the nature of trade and be a separate enterprise.

Goods and Services Tax Ruling GSTR 2006/1 Goods and services tax: the meaning of entity carrying on an enterprise or the purposes of entitlement to an Australian Business Number (GSTR 2006/1).

Paragraph 245 of MT 2006/1 refers to 'the badges of trade' while paragraphs 247 and 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 conjunction with the property realised

•                     The circumstances that were responsible for the realisation; and

•                     Motive.

The subject matter of realisation

You purchased a property and lived there as your primary residence until it was demolished and two town houses built. You moved into one and leased the other townhouse through an agent. You never held an ABN or GST registration while carrying on the leasing enterprise. The leasing enterprise ceased before you put the property on the market for sale.

The length of time of ownership

You have owned the property since XXXX.

The frequency and number of similar transactions

You have no history of property development.

Supplementary work on or in connection with the property realised

The property was leased as a residential premises for several years but less than five years.

The circumstances that were responsible for the realisation

The decision has been made to sell the property due to funds being required.

Motive

The motive for selling the property is to obtain funds.

Based on the above, the sale of the property would not qualify as an adventure or concern in the nature of trade.

Conclusion

The sale of the property will not have been subject to GST when sold by you as the property does not form part of an enterprise being carried on. As a result, the sale will not qualify as a taxable supply under section 9-5.