Will you, Sibling A and Sibling B, make a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 ( GST Act) when you sell the Property?
No. You will not make a taxable supply under section 9-5 of the GST Act because you are not registered or required to be registered for GST. This ruling applies for the following period : XX/XX/20XX to XX/XX/20XX The scheme commenced on: XX/XX/20XX
You are siblings. You do not have an active ABN and you are not registered for GST. You acquired a residential property in 20XX. You used the property as a holiday home until 20XX. In 20XX, you demolished the existing dwelling, subdivided the land into two freehold interests, and constructed a new residential premises on each new interest. You intended to derive rental income from each premises until retirement, after which each of you planned to use one of the properties as your respective main residence. You financed construction costs through borrowings and later refinancing. Construction of the properties was completed in 20XX. You hold both properties in equal shares. Both properties were used to derive rental income. The rental income did not cover the expenses associated with leasing the properties. You have decided to sell one of the properties.
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 23-15 A New Tax System (Goods and Services Tax) Act 1999 section 40-65 A New Tax System (Goods and Services Tax) Act 1999 section 40-75 A New Tax System (Goods and Services Tax) Act 1999 section 188-10 A New Tax System (Goods and Services Tax) Act 1999 section 188-20 A New Tax System (Goods and Services Tax) Act 1999 section 188-25 A New Tax System (Goods and Services Tax) Regulations 2019 section 23-15.01
A supply is taxable under section 9-5 of the GST Act 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 the indirect tax zone; and (d) you are registered, or required to be registered. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. You will satisfy subsections (a) and (c) of section 9-5 of the GST Act because you will receive consideration from the sale of the Property and the supply will be connected with the indirect tax zone. No GST-free provision applies. The supply will be of new residential premises within the meaning of section 40-75 of the GST Act, and therefore will not be input taxed under section 40-65 of the GST Act. Accordingly, the remaining issues are whether the sale will be made in the course or furtherance of an enterprise that you carry on, and whether you are registered, or required to be registered, for GST. Course or furtherance of an enterprise
Under section 9-20 of the GST Act, an enterprise includes activities done in the form of a business, done in the form of an adventure or concern in the nature of trade, or done on a regular or continuous basis in the form of a lease. Our views on the meaning of 'carrying on an enterprise' are outlined in 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). Although MT 2006/1 concerns the Australian Business Number framework, those views apply equally for GST purposes through 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? .
Paragraphs 170 to 176 of MT 2006/1 describe the expression 'in the form of a business' as widening the enquiry beyond the concept of 'carrying on a business'. Relevant indicators include purpose and intention, the degree of organisation, scale, repetition, and whether the activities resemble ordinary trade practices. Paragraphs 234 to 244 explain that isolated transactions may amount to an adventure or concern in the nature of trade, but that the fact an asset is sold for a profit is not sufficient to give the activities a business or commercial character. Paragraph 265 of MT 2006/1 sets out factors relevant to determining whether a one-off real property transaction has a business or trading character, including whether the use or purpose of land changes, whether additional land is acquired, whether borrowed funds are used, whether a subdivision plan exists, and whether development extends beyond what is necessary to secure council approval.
You used the property as a holiday home before deciding to demolish it, subdivide the land, and construct two residential premises. Your intention was to rent out both completed dwellings to derive rental income until retirement, after which each of you would occupy one of the dwellings as your respective main residence. Your activities were not insignificant. You demolished the dwelling, subdivided the land, funded construction through borrowings and refinancing, and constructed two new residential premises. You subsequently leased the new dwellings. While some features of these activities resemble aspects of development activity, they are not determinative. Your rental activities constitute carrying on an enterprise of leasing. You obtained tenants following completion of construction. Your decision to sell the Property arose after your intention to retain the dwellings until retirement became untenable. The rental income did not meet the associated expenses. The sale reflects a change in circumstances affecting your leasing enterprise.
Although development occurred and the Property is new residential premises, the leasing activities, your intention to hold the dwellings long-term, and the absence of a broader development program weigh against characterising your activities as a property development enterprise. Registered or required to be registered for GST A supply is only taxable under section 9-5 of the GST Act if you are registered, or required to be registered, for GST. You are not registered for GST. You are required to be registered for GST under section 23-5 of the GST Act if you are carrying on an enterprise and your GST turnover meets the registration threshold under section 188-10 of the GST Act. The registration threshold is $75,000, as provided in section 23-15 of the GST Act and section 23-15.01 of the A New Tax System (Goods and Services Tax) Regulations 2019 . Under subsection 188-25(a) of the GST Act, supplies made by way of the transfer of ownership of a capital asset are disregarded when working out your projected GST turnover under section 188-20 of the GST Act. The proceeds of the sale of the Property will accordingly be disregarded as it is a capital asset of your leasing enterprise.
Your other enterprise-related supplies consist of residential rent, which is input taxed under section 40-35 of the GST Act and is therefore excluded from GST turnover. Your GST turnover will not meet the registration threshold. You are not required to be registered for GST. Conclusion You will not make a taxable supply under section 9-5 of the GST Act when you sell the Property because you are not registered for GST and you are not required to be registered for GST.