ATO Interpretative Decision
ATO ID 2003/701
Goods and Services Tax
GST and sale of an asset that was purchased for, but not used in, an entity's businessFOI status: may be released
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With effect from 1 July 2015, the term 'Australia' is replaced in nearly all instances within the GST, Luxury Car Tax and Wine Equalisation Tax legislation with the term 'indirect tax zone' by the Treasury Legislation Amendment (Repeal Day) Act 2015. The scope of the new term, however, remains the same as the repealed definition of 'Australia' used in those Acts. For readability and other reasons, where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the entity, a business operator, 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 a business asset that it initially purchased to use in its enterprise, but which it never actually used prior to sale?
Decision
Yes, the entity is making a taxable supply under section 9-5 of the GST Act when it sells a business asset that it initially purchased to use in its enterprise, but which it never actually used prior to sale.
Facts
The entity is a business operator. The entity sells an asset that it initially purchased to use in its enterprise. The asset was not actually used by the entity prior to sale. The asset was not used for a private or domestic purpose.
The entity is registered for goods and services tax (GST) and the supply of the business asset is for consideration and is connected with Australia. The supply of the business asset is neither GST-free nor input taxed.
Reasons for Decision
Under section 9-5 of the GST Act, an entity makes a taxable supply if:
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- it makes a supply for consideration; and
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- the supply is made in the course or furtherance of an enterprise that it carries on; and
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- the supply is connected with Australia; and
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- the entity 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.
The sale of the asset is for consideration, is connected with Australia, and the entity is registered for GST. As such the first, third and fourth requirements of section 9-5 of the GST Act are met.
The second requirement in section 9-5 of the GST Act is that the supply is made in the course or furtherance of the enterprise carried on by the entity. The phrase, 'in the course or furtherance of' is not defined in the GST Act. Accordingly, it is appropriate to examine the ordinary meaning of those words.
The Australian Concise Oxford Dictionary (1997) defines the phrase 'in the course of' as 'during'. The word 'furtherance' is defined to mean 'furthering or being furthered; the advancement of a scheme etc'.
The Explanatory Memorandum relating to the A New Tax System (Goods and Services Tax) Bill 1998 confirms this ordinary meaning at paragraph 3.10 which states:
'In the course or furtherance' is not defined, but is broad enough to cover any supplies made in connection with your enterprise. An act done for the purpose or object of furthering an enterprise, or achieving its goals, is a furtherance of an enterprise although it may not always be in the course of that enterprise.
The entity is selling an asset that it initially purchased to use in its enterprise. This is a sale that is connected with the entity's enterprise. Therefore, although the entity did not actually use the asset, the sale is made in the course or furtherance of the entity's enterprise.
As such the second requirement of section 9-5 of the GST Act is satisfied. Therefore, the sale of the asset satisfies the positive requirements of section 9-5 of the GST Act.
Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it sells a business asset that it initially purchased to use in its enterprise, but which it never actually used prior to sale.
[Note: Paragraph 15AB(1)(a) of the Acts Interpretation Act 1901 provides that consideration may be given to material not forming part of an Act to confirm that the meaning of a provision is the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purposes or object underlying the Act. Paragraph 15AB(2)(e) of the Acts Interpretation Act provides that any explanatory memorandum relating to the Bill containing the provision is extrinsic material that may be considered for this purpose.]
Date of decision: 5 June 2002
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
section 9-5
Division 38
Division 40
paragraph 15AB(1)(a)
paragraph 15AB(2)(e)
Other References:
The Australian Concise Oxford Dictionary, (1997), 3rd edn, Oxford University Press, South Melbourne.
The Explanatory Memorandum relating to the A New Tax System (Goods and Services Tax) Bill 1998.
Keywords
Goods and services tax
GST supplies & acquisitions
GST enterprise
Taxable supply
ISSN: 1445-2782