Would the sale of the property be a taxable supply in accordance with section 9-5 of the A New Taxation System (Goods and Services) Tax 1999 (GST Act)?
No, the sale of the property would not be a taxable supply for the purposes of section 9-5 of the GST Act as there is no enterprise being carried on and the vendor is not required to be registered for GST in relation to this sale. This ruling applies for the following period : Financial year ending 30 June 2023
• The property is jointly owned. • The property was purchased in XXXX and at the time of purchase a residential house was in existence on the property. • The property was tenanted from XXXX to XXXX. • In XXXX the property became vacant and due to its poor condition, it was demolished. • The property has remained a vacant plot since the house was demolished for 11 years. • The property has not been subdivided or any improvements made to the property. • Development approval (DA) was obtained in XXXX but no development has commenced. • The owners of the property are not registered for GST.
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
Under section 9-5 of the GST Act, an entity makes a taxable supply where the supply: 1. is made for consideration; and 2. is made in the furtherance of an enterprise that you carry 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 consists of a vacant plot of land which if sold would be a property located in the indirect tax zone and the supply would be for consideration. Therefore, the sale of the property would satisfy two elements outlined above (1&3). Accordingly, we need to determine whether the other two elements (2&4) would also be satisfied. If this were the case, the supply of the property would satisfy all requirements of section 9-5 of the GST Act and would be a taxable supply. Are you carrying on an enterprise? The term 'enterprise' is defined for GST purposes in section 9-20 of the GST Act and includes, among other things, an 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 incudes 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 and enterprise for the purposes of entitlement to an Australian Business Number (MT2006/1) provides the Tax Office view on the meaning of 'enterprise' for the purposes of entitlement to an Australian business number (ABN). Goods and Services Tax Determination GSTD 2006/6 Goods and Services Tax: 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 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: • a significant commercial activity; • an intention of the taxpayer to engage in commercial activity; • an 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 on in a business-like manner and records kept; • the activities are of a reasonable size and scale; • a business of 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 your case Given the facts of this case, we consider that the sale of the property by you does not display the characteristics of a 'business' as listed above.
Paragraph 245 of MT 2006/1 refers to 'the badges of trade' while paragraphs 247 to 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 connection with the property realised • The circumstances that were responsible for the realisation; and • Motive. The subject matter The property was acquired in XXXX on which a residential property was situated. The property was tenanted from the time of purchase until XXXX, when the building was demolished due to its poor condition. The property has remained as a vacant plot. The length of time of ownership You have owned the property for 23 years. The frequency and number of similar transactions You have not previously undertaken a sale of this nature. Supplementary work on or in connection with the property realised Although you have applied for and received development approval in XXXX you have not made any improvements to the property. The circumstances that were responsible for the realisation
You have decided to sell the property. Motive Although a profit may result from the sale of the property, the length of time you held the property and your initial intentions as demonstrated in leasing the property, does not show that your initial intention in relation to this property was a profit making one. Given the above, we do not consider your activities to constitute an adventure or concern in the nature of trade and as such, you would not be carrying on an 'enterprise' for the purposes of GST in relation to the sale of the property. Therefore, the sale of the property will not be a taxable supply. GST registration Section 23-5 of the GST Act provides that you are required to be registered for GST if you carry on an enterprise and your GST turnover meets the registration turnover threshold (currently $75,000). It is considered that the sale of the property will be a mere realisation of a capital asset and does not constitute an enterprise for the GST purposes. As such you are not required to be registered 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 • Not a GST-free or input taxed supply. As detailed above, we have determined that an enterprise is not being carried on and that the vendor is not registered or required to be registered for GST. Therefore, the sale of this property will not be a taxable supply and the provisions under Section 14-250 of Schedule 1 to the Taxation Administration Act 1953 (TAA) will not apply in relation to this sale. Conclusion The activity of selling the property will not be done in the furtherance of an enterprise. There is no requirement to be registered for GST. As such the vendor of the property will not be liable for GST on the sale of the property in accordance with section 9-40 of the GST Act and the withholding provisions will not apply to this sale.