GST and sale of private residence

Is the entity, an unregistered owner-builder, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it sells its private residence?

No, the entity is not making a taxable supply under section 9-5 of the GST Act when it sells its private residence. The entity is making a supply that is not subject to goods and services tax (GST).

The entity is an individual who is not registered for GST purposes. The entity has an owner-builder's licence.

The entity purchased land and sub-contracted other builders to construct a residential premise on the land. The intention of the entity was to reside in the premise upon completion of construction. The entity has been residing in the premise for approximately two years since construction was completed. The entity is now selling its residential premise with the intention of making a profit.

Over the past twenty-four (24) years, the entity has personally constructed and resided in five premises. The entity resided in each of those premises for more than three years.

Section 9-5 of the GST Act states 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 the supply of residential premises to be a taxable supply, all of the requirements listed in section 9-5 of the GST Act must be fulfilled.

From the facts in this case, paragraphs 9-5(a) and (c) of the GST Act have been satisfied. Therefore, it must be considered whether the supply is made in the course or furtherance of an enterprise (as per paragraph 9-5(b) of the GST Act) and whether the entity is required to be registered for GST (as per paragraph 9-5(d) of the GST Act).

Section 9-20 of the GST Act defines what constitutes an enterprise. This definition includes an activity or series of activities done in the form of an adventure or concern in the nature of trade, or on a regular and continuous basis.

Goods and Services Tax Determination GSTD 2000/8, states that an adventure or concern in the nature of trade covers commercial activities that do not amount to a business. Isolated transactions with commercial characteristics fall into this category. However, under GSTD 2000/8, in the absence of other factors, an adventure or concern in the nature of trade does not extend to the sale of the family home, car or other private assets.

In this case, although the family home is being sold for a profit, this does not, of itself, result in the activity being commercial in nature. The fact that the intention of the entity was to reside in the premises, rather than dispose of the premises shortly after completion, indicates that the sale is not an adventure or concern in the nature of trade. As such, in this case, the sale by the entity of the family home for a profit, is not considered to be an adventure or concern in the nature of trade.

Therefore, the entity is not considered to be carrying on an enterprise for the purposes of paragraph 9-5(b) of the GST Act.

Furthermore, paragraph 9-5(d) of the GST Act provides that a supply will only be a taxable supply where the entity is registered or required to be registered for GST. In this case, as the entity is not registered for GST, the question at issue is whether the entity is required to be registered for GST.

Section 23-5 of the GST Act states that an entity is required to be registered for GST if it is carrying on an enterprise. In this case, as the entity is not considered to be carrying on an enterprise, the entity is not required to be registered for GST. As such, the requirement in paragraph 9-5(d) is not satisfied.

Therefore, the entity is not making a taxable supply under section 9-5 of the GST Act, when it sells its residential premises. [Note: If the entity, as an owner-builder, established a pattern of building residential premises and then selling the premises after a short term of up to one to two years, then this activity could satisfy the meaning of 'an adventure or concern in the nature of trade' in paragraph 9-5(b) of the GST Act. In that case, it could be considered that the character of the asset has changed from that of a 'private asset' to that of a 'trade asset'.

Furthermore, if the remaining positive requirements of section 9-5 of the GST Act were satisfied, the entity could be making a taxable supply of a 'new residential premise' as defined in section 40-75 of the GST Act and the owner-builder would then be required to remit GST to the ATO when the 'new residential premise' is sold].