Edited version of private advice

Authorisation Number: 7915163320380

Date of advice: 9 January 2024

Ruling

Subject: Taxable supply

Question

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

Answer

No. The sale of the property will not be a taxable supply in accordance with section 9-5.

Question 2

Will there be a requirement under section 14-250 of Schedule 1 to the TAA for the purchaser of the property to withhold an amount of GST and remit this to the ATO?

Answer

No. As the sale of the property will not be a taxable supply, the purchaser will not be required to withhold under section 14-250 of Schedule 1 to the TAA.

This ruling applies for the following period:

Financial year ending 30 June 2024

The scheme commences on:

The date this private ruling is issued

Relevant facts and circumstances

The original land was purchased on XX XX XX by the vendors.

The existing residential premises was already in existence on the land when purchased with the premises having been built over the adjoining property lines. The vendors of the land reside in the premises as their primary place of residence.

In order to reduce the mortgage repayments, a permit to realign the boundaries was obtained to allow for the sale of the undeveloped portion of the block.

The undeveloped block will be a separate number when finalised (the property subject to sale and this private ruling).

The other block, is not being sold and does not form part of this private ruling decision.

The costs incurred up to now are around $XX,XXX with another $XX to $XX,XXX expected.

The vendors of the property have not formed a partnership and do not hold an Australian Business Number (ABN).

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

Schedule 1 to the Taxation Administration Act 1953 section 14-250

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 to be sold is located in the indirect tax zone and the supply will be for consideration. Therefore, the sale of the property will satisfy two elements outlined above (1&3). 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 be a taxable supply.

The vendors of the property have lived on the original land in the residential premises as their primary place of residence since purchase. The vendors have not formed a partnership in relation to the sale of the property.

Because the transaction of selling a property may be described as an isolated transaction, we need to consider the extended definition of 'enterprise' and whether this activity falls within the definition of a form of an 'adventure or concern in the nature of trade'.

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.

Are you carrying on an enterprise

The term 'enterprise' is defined for GST purposes in section 9-20 and includes, among other things, and activity or a series of activities done:

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

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

The phase 'carry on' in the context of an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

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 guidance on the meaning of this expression.

Goods and Services Tax Determination GSTD 2006/6 Goods and Services Tax: MT 2006/1 have equal application to the meaning of 'entity' for the purposes of the A New tax System (Goods and Services Tax) Act 1999, provides that the discussion on MT 2006/1 applies equally to the term 'enterprise' as used in the GST Act and can be relied on for GST purposes.

In the form of a business

Paragraphs 170 to 179 of MT 2006/1 discuss factors to consider when determining whether an activity or series of activities are done in the form of a business. Paragraph 178 of MT 2006/1, with reference to Taxation Ruling 97/11 Income tax: am I carrying on a business of primary production lists indicators of carrying on a business:

•         significant commercial activity;

•         an intention of the taxpayer to engage in commercial activity;

•         and intention to make a profit from the activity;

•         the activity will be profitable.

•         the recurrent or regular nature of the activity;

•         the activity is systematic, organised and carried out in a business-like manner and records kept;

•         a business product; and

•         the entity has relevant knowledge or skill.

Paragraph 179 of MT 2006/1 states 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.

Application in this case.

Given the facts of this case, we consider that the sale of the property by the vendors of the property, does not display the characteristics of a 'business' as listed above.

We now need to consider whether the sale of the property will qualify as an adventure or concern in the nature of trade.

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

The intention of the vendors is to use the proceeds of the sale to reduce the mortgage taken out when the original property was purchased.

The length of time of ownership

The original property was purchased in XX XXXX and all parties reside in the property as their main residence. The vendors have applied for a boundary realignment due to the fact that the existing residence straddles both blocks.

The frequency and number of similar transactions

This is a one-off transaction.

Supplementary work on or in connection with the property realised

The boundary realignment has been approved by the council and will be identified as a separate number.

The circumstances that were responsible for the realisation

The vendors decided to realign the boundary line to enable the original property to be separated into two lots with one being sold. This was done to reduce the current mortgage costs.

Motive

The motive for acquiring the original property was for all parties to reside in as their residential premises. The vendors are only selling the property to allow a reduction in the original mortgage that was taken out. The intention in relation to the property shows that, on an objective assessment, the property never had the characteristics of a trade asset.

Conclusion

Given the above, we do not consider that the activity of selling the property would constitute an adventure or concern in the nature of trade and, as such, would not be sold in connection with an enterprise being carried on by the vendors of the property. Therefore, the sale of the property does not meet the requirements under section 9-5 and will not be a taxable supply when sold.

Question 2

GST registration

Section 23-5 provides that you are required to be registered for GST if you carry on an enterprise and your GST turnover meets the registration threshold (currently $75,000)

As provided above in question 1, we have determined that the sale of the property will not be a taxable supply and, as a result, there would be no requirement for the vendors of the property to register for GST.

GST withholding tax

A supply of new residential premises or potential residential land in Australia will be a taxable supply if you're registered or required to be registered for GST and the supply is:

•         Made for consideration,

•         Made in the course or furtherance of an enterprise you carry on, and

•         Not a GST-free or input taxed supply.

As detailed above, we have determined that the vendors of the property are not carrying on an enterprise and that they are not required to register for GST. Therefore, the sale of the property will not be a taxable supply and the provisions under section 14-250 of Schedule 1 to the TAA will not apply in relation to this sale.

Conclusion

The activity of selling the property will not be done in the course or furtherance of an enterprise. There is no requirement to register for GST. As such there will be no GST liability in relation to the sale of the property in accordance with section 9-40 and the withholding provisions under section 14-250 of Schedule 1 to the TAA will not apply to the sale.