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Edited version of private advice
Authorisation Number: 5010066060800
Date of advice: 3 April 2020
Ruling
Subject: GST and sale of residential premises
Question 1
Is the sale of the new residential premise at xx by xx a taxable supply with section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 ("GST Act") and does the GST withholding rules apply as per subdivision 14-E of the Tax Administration Act (TAA)?
Answer
No -the sale is not a taxable supply as not all the requirements under section 9-5 of the GST Act are met.
However, if you undertake any property development in the future it may be considered that you are carrying on an enterprise for GST purposes.
As it is not a taxable supply, the GST withholding rules does not apply.
This ruling applies for the following period:
1 July 20XX - 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You are a fast food business owner - most specifically in XXXX retailing.
You are not registered for GST.
You purchased an existing residential dwelling at xxx ("the Property") which was settled on xx for $xx.
You are the sole owner.
You and your sibling subsequently subdivided the property and built x new residential properties with the intention of making it your primary residences in the future.
Upon completion, you realised that the size of the property would not meet the needs of your family as you have previously resided on a large farmland.
Therefore, you did not reside in this property and it was put up for sale soon after construction was completed.
Your tax agent, xx advised us on xx that no input tax credits were claimed on the construction of the property.
You and your associates have never had any experience in construction and in the property development industry.
As you were unsure if the GST withholding obligation rules would apply to you, the legal parties acting for both the vendor and purchaser adopted the process considered in paragraph 76 of the ATO Ruling LCR 2018/4 whereby prior to settlement occurring, the purchaser would provide a blank cheque to the ATO for the sum of GST that would be payable if GST withholding applies.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999
Section 9-5
Section 9-20
Section 9-40
Section 23-5
Paragraph 23-5(a)
Reasons for Decision
Summary
Section 9-5 of the GST Act states you make a taxable supply if (a) you make a supply for consideration and (b) it is in the course or furtherance of an enterprise that you carry on and (c) the supply is connected with the indirect tax zone (Australia) 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.
In your case, you are making a supply of the property for consideration and sale is connected with the indirect tax zone. You are not carrying on and enterprise and is not registered for the GST, therefore, only paragraphs 9-5(a) and 9-5(c) of the GST Act are satisfied.
From the facts provided, you are not carrying on an enterprise as this is a once off isolated transaction.
As you are not registered for GST, it needs to be determined in this case whether you are required to be registered which is whether you are carrying on an enterprise, and if your GST turnover meets the registration turnover threshold.
Consequently, as you do not satisfy all the elements in section 9-5 of the GST, the sale of the new residential premise at xx will not be a taxable supply.
As a result of this, the GST withholding rules will not apply.
Detailed reasoning
The disposal of the new residential premise will be treated as a mere realisation of an asset as the activity of subdivision and sale of part of the property is an isolated transaction.
As this is the first time you have commenced this type of transaction, we have determined that the sale is not made in the course of carrying on an enterprise. In accordance to paragraph 263 of MT 2006/1 your activities in this situation are not an enterprise in that they are not of a revenue nature in the form of a business or in the form of an adventure or concern in the nature of trade. Your activity in relation to the sale of the new residential premise is a 'one off' undertaking for which you did not have a commercial purpose in mind.
Therefore you do not meet all the elements of section 9-5 of the GST Act. Accordingly, the sale will not be a taxable supply and there will not GST withholding obligations as per the Law Companion Ruling 2018/4.
However, in the future if you carry on a similar type of activity we may consider that you are carrying an enterprise.