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1 Is the sale of Dwelling 1, a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)and therefore subject to GST?

1 No. Question 2 Is the sale of Dwelling 2, a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)and therefore subject to GST? Answer 2 No. This ruling applies for the following periods : XX February 20XX to XX February 20XX

You reside in Australia and are not and never been registered for GST. You do not carry on any business activity in Australia. You and your late spouse acquired the property in 19YY which had an existing dwelling. The property was occupied by you and your spouse as your main residence. You and your spouse worked together in your self-employed business of industrial / commercial / civil line marking for councils, airports etc throughout the remainder of their working lives, retiring completely back in 20YY. To make you and your spouse's home life more comfortable with their ageing and various ailments, you and your spouse decided to investigate a knock down and rebuild on the property. The intention was to construct, with one dwelling built to a high specification, including dream fittings, a small pool and an elevator. The second dwelling was to be built to a normal specification and would be retained to generate rental income to assist with ongoing retirement funding. You and your spouse entered into building contracts in 20YY. The existing dwelling was demolished in MM 20YY, and the property was later subdivided into two lots in 20YY.

You and your spouse financed the project using personal funds including superannuation and non-commercial loans. You and your spouse found a builder who could assist with the development, at a price that was affordable from your savings. Due to the cost of construction rising, you and Your spouse did not have enough savings to complete the building process and funded the shortfall in the loan with finance obtained from x Finance. In 20YY, you were diagnosed with cancer which required brain surgery followed by chemotherapy and radiotherapy. The outcome of your treatment is still unknown. Construction of the duplex, comprising of two dwellings known as Dwelling 1 and Dwelling 2 reached practical completion in mid-MM 20YY. You have not claimed, and do not intend to claim, input tax credits for the construction of either Dwelling 1 or Dwelling 2. You and your spouse moved into Dwelling 1 on DD MM 20YY as your main residence. Your spouse passed away on DD MM 20YY. As this was a traumatic event, you realised that you could not live in the house where your wife of over XX years had passed away.

You decided to sell Dwelling 1 and invest those funds to assist with your retirement income, and gift some to your children. Dwelling 1 was listed for sale mid-MM 20YY, with the contract of sale entered into on MM 20YY and settlement occurring in MM 20YY. Although you and your spouse intended to rent or lease Dwelling 2 upon completion, this did not eventuate, and the dwelling remained vacant. On DD MM 20YY, you commenced residing at Dwelling 2 and treated the dwelling as your main residence. At the same time, your child and their family moved into the property to provide you with support while completing your medical treatment. You now dislike living in Dwelling 2, in close proximity to your previous family home and existing dwelling 1, and the memories it holds. You propose to sell Dwelling 2 within the next year and relocate elsewhere away from the neighbourhood and maybe even the city, to have a change of pace and lifestyle more in keeping with what you hope will be your post all-clear cancer outcome. You have no prior experience of property developing, and no personal skills in the building and construction

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 23-5 A New Tax System (Goods and Services Tax) Act 1999 section 188-10 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

Question 1 Is the sale of Dwelling 1, a taxable supply under section 9-5 of the GST Actand therefore subject to GST? Answer No. Detailed reasoning •                     all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) •                     reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au Section 9-5 provides that you make a taxable supply if: (a)          you make the supply for consideration (b)          the supply is made in the course or furtherance of an enterprise that you carry on (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. In your case, your supply of Dwelling 1 was for consideration and is connected with Australia as the dwelling is located in Australia, therefore you and satisfy paragraphs 9-5(a) and 9-5(c). Further, the GST-free and input tax provisions do not apply in your circumstances.

However, it is necessary to determine whether the sale of Dwelling 1 was made in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b)) and if you are required to be registered for GST (paragraph 9-5(d)). Enterprise Subsection 9-20(1) provides that an enterprise relevantly includes: 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 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) contains the Commissioner's view on what constitutes an enterprise for the purpose of eligibility for an Australian Business Number. Paragraph 234 of MT 2006/1 distinguishes between activities done in the form of a business and those done in the form of an adventure or concern in the nature of trade. •                     A business encompasses trade engaged in on a regular basis.

•                     An adventure or concern in the nature of trade includes an isolated or one-off transaction that does not amount to a business, but which has the characteristics of a business deal. 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 TR 97/11 Income tax: am I carrying on a business of primary production? lists indicators of carrying on a business: •                     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 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. Given the facts we consider that you are not carrying on an enterprise in the form of a business because your activities by themselves were not a commercial activity nor was your intention to undertake a commercial activity but a private activity of building your principal place of residence. Next, we need to consider whether your activities are an activity in the form of an adventure or concern in the nature of trade. In the form of an adventure or concern in the nature of trade Paragraphs 243 to 257 of MT 2006/1 discuss the characteristics of trade, including the badges of trade as referred to in a number of judicial decisions.

•                     The subject matter of the realisation •                     Length of period of ownership •                     Frequency or number of similar transactions •                     Supplementary work on or in connection with the property realised •                     Circumstances that were responsible for the realisation •                     Motive Paragraph 262 of MT 2006/1 acknowledges that the question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions. Paragraph 263 continues stating that the issue to be decided is whether the activities being conducted are an enterprise in that they are of a revenue nature as they are considered to be activities of carrying on a business or an adventure or concern in the nature of trade (profit making undertaking or scheme) as opposed to the mere realisation of a capital asset. In this case: •                     You purchased the property in 19YY, which has been your main residence since.

•                     To make your home life more comfortable, you decided to demolish the existing dwelling on the property and construct a modern duplex consisting of two dwellings. •                     Upon completion in MM 20YY, you and your spouse commenced residing in Dwelling 1, as your main residence. •                     The original intention was to reside in the newly completed dwelling; however, due to significant health issues and extreme personal circumstances have resulted in a change in this intention. You decided to sell Dwelling 1, which was sold in 20YY. Having regard to all the facts and circumstances of your case, the sale of Dwelling 1 is the sale of a capital asset rather than the sale of a trading asset of a business or is an adventure or concern in the nature of trade. Accordingly, the sale of Dwelling 1 is not in the course of furtherance of an enterprise that you carry on under section 9-20, therefore paragraph 9-5(b) is not satisfied. 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 turnover threshold (currently $75,000).

We determined above that the sale of Dwelling 1 was not made in the course or furtherance of an enterprise that you carry on. Accordingly, the proceeds from the sale are not included in the calculation of your GST turnover threshold. As your GST turnover does not meet the registration turnover, you are not required to be registered for GST. As you are neither registered for GST nor required to be registered paragraph 9-5(d) is not satisfied. Conclusion As you do not satisfy all the requirements of section 9-5, the sale of Dwelling 1 is not a taxable supply and will not be subject to GST. Question 2 Is the sale of Dwelling 2, a taxable supply under section 9-5 of the GST Actand therefore subject to GST? Answer No. Detailed reasoning Section 9-5 provides that you make a taxable supply if: (a)          you make the supply for consideration (b)          the supply is made in the course or furtherance of an enterprise that you carry on (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.

In this case, your proposed sale of Dwelling 2, will be a supply for consideration and is connected with Australia since the dwelling is located in Australia, therefore you satisfy paragraphs 9-5(a) and (c). Further, the GST-free and input tax provisions do not apply in your circumstances. However, it is necessary to determine whether the proposed sale of Dwelling 2 is made in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b)) and if you are required to be registered for GST (paragraph 9-5(d)). Whether the sale will be made in the course or furtherance of an enterprise that you carry on In accordance with section 9-20, an enterprise includes, amongst other things: •                     an activity or series of activities done in the form of a business •                     an adventure or concern in the nature of trade •                     leasing out property on a regular or continuous basis

Miscellaneous Taxation Ruling MT 2006/1 provides guidance on the meaning of enterprise for the purpose of entitlement to an Australian Business Number (ABN). Goods and Services Tax Determination GSTD 2006/6 states that MT 2006/1 can be relied on for the purposes of determining whether an entity carries on an enterprise for GST purposes. In the form of an adventure or concern in the nature of trade Paragraphs 244, 259, 262 and 263 of MT 2006/1 state: 244. 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. Such transactions are of a revenue nature. However, the sale of the family home, car and other private assets are not, in the absence of other factors, adventures or concerns in the nature of trade. The fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature. 259. Examples of investment assets are rental properties, business plant and machinery, the family home, family cars and other private assets. The mere disposal of investment assets does not amount to trade. Isolated transactions and sales of real property

262. The question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions. 263. The issue to be decided is whether the activities are an enterprise in that they are of a revenue nature as they are considered to be activities of carrying on a business or an adventure or concern in the nature of trade (profit making undertaking or scheme) as opposed to the mere realisation of a capital asset.... Paragraphs 264 to 269 of MT 2006/1 outline factors that indicate whether the activities undertaken for the subdivision or sale of the land are an 'adventure or concern in the nature of trade' and state:

264. The cases of Statham & Anor v. Federal Commissioner of Taxation... (Statham) and Casimaty v. FC of T... (Casimaty) provide some guidance on when activities to subdivide land amount to a business or a profit-making undertaking or scheme. In these cases, farmland was subdivided and sold. Minimal development work was undertaken to meet council requirements and to improve the presentation of certain allotments. On the particular facts of these cases the courts held that the sales were a mere realisation of a capital asset. 265. From the Statham and Casimaty cases a list of factors can be ascertained that provide assistance in determining whether activities are a business or an adventure or concern in the nature of trade. If several of these factors are present it may be an indication that a business or an adventure or concern in the nature of trade is being carried on. These factors are as follows: ... •                    there is a change of purpose for which the land is held; •                    additional land is acquired to be added to the original parcel of land; •                    the parcel of land is brought into account as a business asset;

•                    there is a coherent plan for the subdivision of the land; •                    there is a business organisation - for example a manager, office and letterhead; •                    borrowed funds financed the acquisition or subdivision; •                    interest on money borrowed to defray subdivisional costs was claimed as a business expense; •                    there is a level of development of the land beyond that necessary to secure council approval for the subdivision; and •                    buildings have been erected on the land. 266. In determining whether activities relating to isolated transactions are an enterprise or are the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each particular case. This may require a consideration of the factors outlined above, however there may also be other relevant factors that need to be weighed up as part of the process of reaching an overall conclusion. No single factor will be determinative rather it will be a combination of factors that will lead to a conclusion as to the character of the activities. ...

269. The Commissioner recognises that in some cases practical difficulties may arise in deciding whether the activities involved in a particular subdivision amount to an enterprise. The question is necessarily one of fact and degree. As outlined above, it requires a careful weighing of the various factors and exercising judgment in the light of decided case law and commercial experience... You constructed Dwelling 2 for the sole purpose of leasing it out long-term, even though the lease on the property was never realised. As such, we consider that your intentions were to carry on an enterprise of leasing, being activities done on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property. Accordingly, the proposed sale of Dwelling 2 is in the course of furtherance of an enterprise that you carry on under section 9-20, therefore paragraph 9-5(a) is satisfied. Requirement to be registered Section 23-5 provides that you are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold.

Section 188-10 provides that your GST turnover will meet the registration turnover threshold if: (a)          your current GST turnover is at or above the threshold ($75,000) and the Commissioner is not satisfied that your projected GST turnover is below $75,000, or (b)          your projected GST turnover is at or above $75,000. Your 'current GST turnover' is the sum of your turnover for the current month and the previous 11 months. Your 'projected GST turnover' is the sum of your turnover for the current month and the next 11 months. Paragraphs 188-15(1)(a) and 188-20(1)(a) provide that input taxed supplies are disregarded when calculating your current and projected turnovers respectively. As such, your input taxed supplies of leasing are disregarded when determining whether you meet the GST registration turnover threshold. In addition, section 188-25 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. The meaning of 'capital assets' is discussed at paragraphs 31 to 36 of GSTR 2001/7. Meaning of 'capital assets'

31.          The GST Act does not define the term 'capital assets'. Generally, the term 'capital assets' refers to those assets that make up 'the profit yielding subject' of an enterprise. They are often referred to as 'structural assets' and may be described as 'the business entity, structure or organisation set up or established for the earning of profits'. 32.          'Capital assets' can include tangible assets such as your factory, shop or office, your land on which they stand, fixtures and fittings, plant, furniture, machinery and motor vehicles that are retained by you to produce income. 'Capital assets' can also include intangible assets, such as your goodwill. 33.          Capital assets are 'radically different from assets which are turned over and bought and sold in the course of trading operations'. An asset which is acquired and used for resale in the course of carrying on an enterprise (for example, trading stock) is not a 'capital asset' for the purposes of paragraph 188-25(a). 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'.

35.          If the means by which you derive income is through the disposal of an asset, the asset will be of a revenue nature rather than a capital asset even if such a disposal is an occasional or one-off transaction. Isolated transactions are discussed further at paragraphs 46 and 47 of this Ruling. 36.          Over the period that an asset is held by an entity, its character may change from capital to revenue or from revenue to capital. For the purposes of section 188-25 the character of an asset must be determined at the time of expected supply. In your case, you constructed Dwelling 2 with the intention to hold as a long-term rental and provide income for your retirement. It was not your intention to construct Dwelling 2 for the purpose of sale or trade. You have not been engaged in property development activities nor any business or enterprise involving the sale of real property. However, due to the memories the property holds, you have decided to sell Dwelling 2 and move away from the area.

Given that there is no history to the contrary, we consider that Dwelling 2 was constructed with the sole intention of being held as a long-term investment and as such will be regarded as a 'capital asset'. As the proposed sale of Dwelling 2 will represent the transfer of ownership of a capital asset, the proceeds from the sale would be excluded from the calculation of projected annual turnover. Therefore, as your current and projected annual turnover from your leasing enterprise would be nil, you would not be required to be registered for GST. Accordingly, paragraph 9-5(d) is not satisfied when you are neither registered for GST, nor required to be registered for GST. Conclusion As you do not satisfy all the requirements of section 9-5, the sale of Dwelling 2 is not a taxable supply and will not be subject to GST.