Edited version of private advice

Authorisation Number: 1052371903472

Date of advice: 13 March 2025

Ruling

Subject: GST - sale of property

Question 1

Were you carrying on an enterprise under section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you signed the agency agreement to sell the land?

Answer

Yes, you were carrying on an enterprise.

Question 2

Will the Commissioner cancel your registration under section 25-55 of the GST Act as of the date you signed the agency agreement?

Answer

No, the Commissioner is not satisfied that your GST turnover is below the registration turnover threshold.

This ruling applies for the following period:

Quarter ending 30 June 20YY

The scheme commenced on:

11 May 20YY

Relevant facts and circumstances

You are a company and registered for GST.

You initially registered your company as a property development enterprise with your activities expanding to property investment and leasing.

You acquired vacant land using company funds. It was your intention to develop this property into 3 residential villas and sell some or all for profit within 5 years of construction.

Since the acquisition of the land, you have undertaken the following activity:

•                     You engaged a land surveyor.

•                     You engaged a building designer for the preparation of concept designs for the proposed villas.

•                     A development application (DA) for 3 villas to be built on the land was approved.

•                     Rising construction costs made the planned development of the land financially unviable. You abandoned the development plans and sought to sell the property.

You acquired a further 3 retail properties (The Properties) located adjacent to each other. One of these properties contained a two-storey building with a retail ground-floor shop and residential apartment upstairs.

You have undertaken the following activity on these Properties:

•                     You engaged a building designer to do a feasibility study for potential renovation of the existing shops or redevelopment options (new shops, residential villas, or a small-scale motel).

•                     You acquired an additional adjacent property. This gave rear lane access to the properties.

•                     You engaged an architect to apply for a demolition determination due to heritage conservation uncertainty.

•                     You engaged a land surveyor to do a survey for boundary assessments and investment decisions.

•                     You then leased out the upstairs residential apartment to Tenant 1. The supply was an input taxed supply of residential premises and did not include GST. This lease terminated.

•                     You entered into a new lease agreement with Tenant 2. Under the terms of the new lease agreement, you leased the entire property. As the property was party commercial and partly residential premises you reported GST to the extent that the property was a taxable supply.

•                     The remaining 3 properties are currently vacant.

You entered into an agency agreement with a real estate agent to sell the land.

You listed the land for sale, and it was advertised as a DA Approved Development.

You (as Vendor) and Buyer 1 entered a contract to sell the land. The sale was conditional on obtaining a construction certificate (CC) before settlement. You commenced activities to obtain the CC but, due to the complexity of the process, failed to meet the condition.

Buyer 1 terminated the contract.

You continued to pursue the CC to expand the pool of potential buyers.

You readvertised the property, this time with the advertisement stating that "Development will be sold with the DA and CC."

Later you sold the land to Buyer 2. A CC was provided as part of the sale.

You claimed GST credits on costs associated with the development approval, CC and agency agreement for the land. You continued to claim GST credits on costs associated with the land until its sale.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-20(1)(a)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-20(1)(b)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-20(1)(c)

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

A New Tax System (Goods and Services Tax) Act 1999 subsection 23-5(a)

A New Tax System (Goods and Services Tax) Act 1999 section 25-55

A New Tax System (Goods and Services Tax) Act 1999 subsection 25-55(1)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 25-55(1)(c)

A New Tax System (Goods and Services Tax) Act 1999 subsection 25-55(2)

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-10(1)

A New Tax System (Goods and Services Tax) Act 1999 section 188-15

A New Tax System (Goods and Services Tax) Act 1999 section 188-20

A New Tax System (Goods and Services Tax) Act 1999 section 188-25

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision

Question 1

Summary

Yes, you were carrying on an enterprise under section 9-20 of the GST Act.

Detailed reasoning

The term 'enterprise' is defined in section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and includes (amongst other things) an activity or series of activities, done:

•                     in the form of a business (paragraph 9-20(1)(a) of the GST Act); or

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

•                     on a regular of continuous basis, in the form of a lease, licence or other grant of interest in property (paragraph 9-20(1)(c) of the GST Act).

The term 'carrying on' defined in section 195-1 of the GST Act which provides that carrying on an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

The meaning of enterprise is considered 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). According to MT 2006/1, a business generally includes a trade that is engaged in on a regular or continuous basis, while 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. Isolated or one-off transactions will fall into this category.,

The use of the words 'in the form of' before 'business' or 'an adventure or concern in the nature of trade' has the effect of extending the meaning of 'enterprise' beyond entities carrying on a business or an adventure or concern in the nature of trade. Despite this, the focus is on determining the factors indicating a business.

MT 2006/1 states the following at paragraph 159:

159.       Whether or not an activity constitutes an enterprise is a question of fact and degree depending on the circumstances of each individual case.

Paragraph 178 of MT 2006/1 discusses in the form of a business and provides the following:

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.

Paragraph 179 of MT 2006/1 provides 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.

Paragraph 270 of MT 2006/1 states:

Land bought with the intention of resale

270.       In isolated transactions, where land is sold that was purchased with the intention of resale at a profit (which would be ordinary income) the Commissioner considers these activities to be an enterprise. This would be so whether the land was sold as it was when it was purchased or whether it was subdivided before sale. An enterprise would be carried on in this situation because the activities are business activities or activities in the conduct of a profit-making undertaking or scheme and therefore an adventure or concern in the nature of trade.

Paragraphs 140 of MT 2006/1 discusses the termination of an enterprise:

Termination of an enterprise

140.       Carrying on an enterprise includes doing anything in the course of the termination of the enterprise. An enterprise terminates when the activities related to that enterprise cease. Ordinarily, that occurs when all assets are disposed of or converted to another purpose or use and all obligations are satisfied. Disposal of assets may include the sale, scrapping, or other disposal of the assets.

Paragraph 142 to 147 discusses a change in purpose of an asset or when an asset has become worthless.

142.       A change in purpose or use of all assets could result in the termination of an enterprise. A change could occur where an asset is no longer used by the entity in the enterprise and is instead used for private purposes.

143.       If some assets continue to be held by the entity because they cannot be disposed of or converted to another use and those assets are worthless or likely to be of little value, the enterprise can still be said to have terminated.

[...]

145.       An enterprise is also considered to terminate where outstanding obligations cannot be satisfied, and other activities have ceased.

146.       However, an entity is still entitled to an ABN where it has ended some activities that themselves would constitute a separate enterprise, but it is still running at least one enterprise. This is because an entity is entitled to an ABN while it is carrying on an enterprise. The entity is also entitled to an ABN where the only activities performed are those that it does in terminating the enterprise, for example the sale of its business premises. Those activities are done in carrying on an enterprise.

147.       The question of whether the activities are done in terminating the enterprise or at some later point (and do not have a connection with the termination activities) is one of fact and degree depending on the circumstances of each particular case.

You contend that when you entered into the agency agreement to sell the land that your enterprise activities have ceased, and your sale of the land is merely a realisation of an asset.

We do not agree with your contention. Rather we consider that at the time of entering into to agency agreement you continue to carry-on an enterprise. Namely, consistent with the view in MT 2006/1 this enterprise includes leasing activities as well as a property development business. The fact that you are not proceeding to construct the premises prior to selling the land does mean that an enterprise is not being conducted. Therefore, we do not agree that the sale of the land is a mere realisation of an asset.

In this case you were established as a company for the purpose of conducting development activities and your activities expanded to leasing property. You purchased the land and engaged suitably qualified persons to proceed with activities associated with the business of property development. Your appointment of the real estate agent to sell the land prior to any construction is part of your property activities.

Consequently, we consider that you were carrying on a property development enterprise and a leasing enterprise under section 9-20 of the GST Act when you signed the agency agreement to sell the land.

Question 2

Summary

No, the Commissioner is not satisfied that your GST turnover is below the registration turnover threshold.

Detailed reasoning

Section 25-55 of the GST Act sets out when the Commissioner must cancel registration and provides that:

(1)          The Commissioner must cancel your *registration if:

(a)         you have applied for cancellation of registration in the *approved form; and

(b)         at the time you applied for cancellation of registration, you had been registered for at least 12 months; and

(c)         the Commissioner is satisfied that you are not *required to be registered.

(2)          The Commissioner must cancel your *registration (even if you have not applied for cancellation of your registration) if:

(a)         the Commissioner is satisfied that you are not *carrying on an *enterprise; and

(b)         the Commissioner believes on reasonable grounds that you are not likely to carry on an enterprise for at least 12 months.

[...]

Subsection 25-55(2) of the GST Act is not relevant to your case as set out in question 1 above, you are carrying on an enterprise which includes conducting activities of leasing and property development. Therefore, what remains to be determined is whether subsection 25-55(1) of the GST Act applies.

Section 23-5 of the GST Act states that you are required to be registered for GST if:

(a)          you are *carrying on an *enterprise; and

(b)          your *GST turnover meets the *registration turnover threshold (currently $75,000).

Subsection 23-5(a) of the GST Act is satisfied as you are carrying on an enterprise. We now need to consider whether your GST turnover when you signed the agency agreement meets the registration turnover threshold.

Subsection 188-10(1) of the GST Act provides that you have a GST turnover that meets the registration turnover threshold if:

(a)          your *current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your *projected GST turnover is below the turnover threshold; or

(b)          your projected GST turnover is at or above the turnover threshold.

'Current GST turnover' is defined in section 188-15 of the GST Act as the sum of the values of all of your supplies made in a particular month and the preceding 11 months.

'Projected GST turnover' is defined in section 188-20 of the GST Act as the sum of the values of all of your supplies made in a particular month and the following 11 months.

Section 188-25 of the GST Act provides that in calculating your projected GST turnover, you disregard any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours.

Goods and Services Tax Ruling GSTR 2001/7 Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover discusses this issue.

Capital assets are distinguished from revenue assets at paragraph 34 of GSTR 2001/7 which states:

34.          'Capital assets' are to be distinguished from 'revenue assets'. A 'revenue asset' is 'an asset whose realisation is inherent in, or incidental to, the carrying on of a business'.

You submit that the activities related to the potential sales at the land and to the ownership of The Properties are consistent with the mere realisation of an asset. In coming to your conclusions, you refer to MT 2006/1 and GSTA TPP 070 Goods and services tax: Is a party to a contract for the sale of a commercial property who deregisters for GST before settlement required to pay GST?

We disagree with your submission. Relevantly, consistent with the view in MT 2006/1 and paragraph 34 of MT 2001/7 as set out above we do not consider that land is a capital asset within the meaning of a capital asset. It follows that the answer set out in the GSTA TPP 070 does not apply to your circumstances.

As we consider that the land is not a capital asset pursuant to section 188-25 of the GST Act, the proceeds from the sale of the land will need to be included when calculating your projected turnover.

As it can be reasonably determined that the sale of the land will exceed $75,000, the Commissioner is not satisfied that your GST turnover when you signed the agency agreement is below the GST registration turnover threshold in subsection 188-10(1) of the GST Act.

Consequently, you have not met the requirement of paragraph 25-55(1)(c) of the GST Act.

It follows that we will not cancel your GST registration under section 25-55 of the GST Act.