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1 Was the sale of the property a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

1 No. The sale of the property was not a taxable sale under section 9-5 of the GST Act and is not subject to GST. Question 2 Are you eligible to apply the margin scheme under Division 75 of the GST Act to work out the amount of GST payable on the sale of the property? Answer 2 Unnecessary to answer. This private ruling applies for the following period: 1 April 20XX to 30 June 20XX The scheme commenced on: XX June 20XX

Person A and Person B (you) acquired a property. The property was purchased on xx April 20XX for $xxx,xxx. The property was sold on xx June 20XX for $xxx,xxx. The property comprises a Barn connected to water, sewer & electricity. It is partially insulated & lined. The area around the property has many barns that are built and occupied as houses. Your original intention when you acquired the property was to use it as a primary residence. However, your situation changed, and you used the barn & land for Person A's business. Person A has been registered for GST since xx July 2000 for the business as a sole trader. Person B is not registered for GST. You did not claim input tax credits on the purchase of the property.

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 40-65 A New Tax System (Goods and Services Tax) Act 1999 section 184-1 A New Tax System (Goods and Services Tax) Act 1999 section 195-1

All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 unless otherwise noted. Summary GST is not payable on the sale of the property because you are not making a taxable supply under section 9-5. Detailed reasoning Question 1 Taxable supplies Under section 9-5, a supply will be a taxable supply if: (a)           you make the supply for consideration; and (b)           the supply is made in the course or furtherance of an enterprise that you carry on; and (c)            the supply is connected with Australia; and (d)           you are 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. All the requirements of section 9-5 must be satisfied for the sale of the property to be a taxable supply. Who is the entity making the supply of the property? The property is registered to two owners. Therefore, we first need to determine whether the sale of the property is made by each individual separately or by a partnership for GST purposes.

The term 'you' applies to 'entities' generally. An entity is defined in section 184-1 to include (among others) an individual and a partnership. The term 'partnership' is defined in the GST Act by reference to the definition of 'partnership' in the Income Tax Assessment Act 1997 . That definition states: partnership means: (a) an association of persons (other than a company or a *limited partnership) carrying on business as partners or in receipt of *ordinary income or *statutory income jointly... The first limb of paragraph (a) of the definition refers to 'an association of persons (other than a company or a limited partnership) carrying on business as partners'. This reflects the general law definition of a partnership. The second limb of paragraph (a) of the definition includes as a partnership an association of persons (other than a company or a limited partnership) in receipt of ordinary income or statutory income jointly. We refer to this type of a partnership as a tax law partnership, which exists for tax purposes only.

At general law, joint tenancy, tenancies in common, joint property or part ownership do not, in themselves, create a partnership in respect of anything that is so held. Neither does the sharing of any profits from the use of the property result in a partnership under general law. However, the GST Act has adopted the income tax concept of tax law partnerships as a means of dealing with the GST obligations and entitlements arising from the common situation of co-ownership of property and its exploitation for income producing purposes. Goods and Services Tax Ruling GSTR 2004/6 Goods and services tax: tax law partnerships and co-owners of property (GSTR 2004/6) explains how GST applies to transactions involving tax law partnerships and co-owners of property. The following paragraphs of GSTR 2004/6 explains the conversion of an existing property to an income producing use: 48. The co-owners of property may convert it from a private or other use not connected to an enterprise, to an income producing use. For example, a private residence may be converted to a suite of offices for leasing.

49. If co-owners jointly apply or convert the property for an income producing purpose, the tax law partnership is formed when the co-owners agree to undertake the conversion of the property. The activities to convert the premises to an income producing use must commence within a reasonable period from the time of agreement. What is a reasonable time will depend on the facts and circumstances of each case. In applying the principles contained in GSTR 2004/6 to your circumstances, we consider that a tax law partnership exists. This is because there is an association (existence of a mutual or common purpose) between you as the co-owners who have an entitlement to receive income jointly (as one entity) from the sale of the property. The partnership was formed when you agreed to use the property for the beekeeping enterprise. Hence, we need to consider if the requirements of section 9-5 are met by the partnership. Taxable supply Based on the information provided, the sale of the property satisfies the requirements of paragraphs 9-5(a) and 9-5(c). That is, you supply the property for consideration and the supply is connected with Australia as the property is located in Australia.

It remains to be determined whether the sale of the property is made in the course or furtherance of an enterprise that you carry on, whether you are registered or required to be registered for GST and whether the sale is either GST-free or input taxed. Whether the sale was made in the course or furtherance of an enterprise that you carry on The term 'enterprise' is defined in subsection 9-20(1) to include, amongst other things, an activity or series of activities done in the form of a business, or in the form of an adventure or concern in the nature of trade, or on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property. Section 195-1 provides that "carrying on" 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 the view of the ATO on the meaning of enterprise for the purposes of entitlement to an Australian Business Number. Goods and Services Tax Determination GSTD 2006/6

Goods and services tax: does 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? (GSTD 2006/6) provides that the discussion in MT 2006/1 equally applies to the term 'enterprise' as used in the GST Act and can be relied on for GST purposes. MT 2006/1 provides that ordinarily, the term business would encompass trade engaged in, on a regular or continuous basis, while an adventure or concern in the nature of trade may be an isolated or one-off commercial activity that does not amount to a business but which has the characteristics of a business deal. However, the mere realisation of investment or private assets does not amount to trade. Additionally, the fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature.

Paragraphs 258 to 260 of MT 2006/1 provide that certain type of assets, such as rental properties, business plant and machinery, the family home, family cars and other assets are considered as investment assets. These assets are purchased with the intention of being held for a reasonable period of time, as income-producing assets or for the pleasure or enjoyment of the person. The mere disposal of these investment and private assets does not amount to trade. Assets can change their character from investment to trade, however, these assets cannot be held at the same time for both purposes. Paragraphs 262 to 302 of MT 2006/1 consider isolated transactions and sales of real property. Paragraph 263 of MT 2006/1 states that the issue to be decided is whether the activities are an enterprise, in that they are of a revenue nature, as opposed to the mere realisation of a capital asset. Paragraph 159 of MT 2006/1 explains that whether or not an activity constitutes an enterprise is a question of fact and degree depending on the circumstances of each individual case.

In your case, you are not considered to be carrying on an enterprise as defined in section 9-20. Whilst you allowed Person A to use the premises for his business, there was no leasing enterprise as it was a private agreement and no rent was charged. Accordingly, the sale of the property is not made in the course of an enterprise and the requirement of paragraph 9-5(b) is not satisfied. Therefore, as not all of the requirements of section 9-5 are satisfied, the sale of the property is not a taxable supply. Additional information The sale of residential premises is input taxed under section 40-65. Section 40-65 states: Sales of residential premises 1)             A sale of *real property is input taxed, but only to the extent that the property is *residential premises to be used predominantly for residential accommodation (regardless of the term of occupation). 2)             However, the sale is not input taxed to the extent that the *residential premises are: (a)           *commercial residential premises; or (b)           *new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998.

(*Denotes a term defined in section 195-1 of the GST Act) Section 195-1 defines residential premises and states: residential premises means land or a building that: (a)           is occupied as a residence or for residential accommodation; or (b)           is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation; (regardless of the term of the occupation or intended occupation) and includes a *floating home. Goods and Services Tax Ruling 2012/5 Goods and services tax: residential premises (GSTR 2012/5), relevantly explains what is meant by 'residential premises' in the following paragraphs: 6. Premises, comprising land or a building, are residential premises under paragraph (a) of the definition of residential premises in section 195-1 where the premises are occupied as a residence or for residential accommodation, regardless of the term of occupation. The actual use of the premises as a residence or for residential accommodation is relevant to satisfying this limb of the definition.

7. Premises, comprising land or a building, are also residential premises under paragraph (b) of the definition of residential premises if the premises are intended to be occupied, and are capable of being occupied, as a residence or for residential accommodation, regardless of the term of the intended occupation. This limb of the definition refers to premises that are designed, built or modified so as to be suitable to be occupied, and capable of being occupied, as a residence or for residential accommodation. This is demonstrated through the physical characteristics of the premises. 14. 'Residential premises' are not limited to premises suited to extended or permanent occupation. Residential premises provide 'living accommodation', which does not require any degree of permanence. It includes lodging, sleeping or overnight accommodation. 15. To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation.

The following paragraph from GSTR 2012/5 discusses in more detail land supplied with a building: 46. There is no specific restriction, in the definition of residential premises, on the area of land that can be included with a building. The extent to which land forms part of residential premises to be used predominantly for residential accommodation is a question of fact and degree in each case. A relevant factor in determining this is the extent to which the physical characteristics of the land and building as a whole indicate that the land is to be enjoyed in conjunction with the residential building. The use of the land is not a determining factor in deciding if the land forms part of the residential premises. The guidance of the following paragraph from GSTR 2012/5 discusses in more detail living accommodation provided by shelter and basic living facilities: 76. In South Steyne

it was held that only the elements of shelter and basic living facilities are necessary for premises to satisfy the definition of residential premises. This includes, for example, shelter and basic living facilities provided by a bedroom and bathroom. However, premises may provide shelter and basic living facilities without necessarily having a conventional bedroom or bathroom. In your case, the property does not satisfy the definition of residential premises. While your barn does provide shelter without necessarily having a conventional bedroom, it does not completely provide basic living facilities beyond a toilet and a basin. That is, there is no shower and no cooking facilities. In its current state, your property is not capable of being occupied as a residence. When applying the principles above with the facts you provided, we consider that the property is a commercial shed and land used in Person A's business. Hence, the sale would have been of commercial premises and would not have satisfied the requirements to be an input taxed supply under subsection 40-65(1).