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Edited version of your written advice
Authorisation Number: 1012993524464
Date of advice: 5 April 2016
Ruling
Subject: GST and sale of land
Question
Do the actions of the tax payers amount to carrying on an enterprise for GST purposes?
Answer
No, the actions of the tax payer' do not amount to carrying on an enterprise for GST purposes.
The tax payers are not considered to be carrying on an enterprise under the circumstances described in this ruling. Therefore, they are not required to register for GST and no GST is payable on the sale of the land.
Relevant facts and circumstances
The property being sold has been used to operate a farming business throughout the ownership period; however the operations have substantially diminished over the past five years. Currently the activities consist of running a small number of cattle on the land. No profit is made from these activities.
In relation to preparing the land for sale there is no business organisation in place - for example a manager, office and letterhead.
No buildings or other amenities have been erected on the land.
There are no:
• new roads with kerbing and channelling to be added to the property
• provision of water, electricity and telephone services to be added to the property
• provision of culverts and other storm water drainage works ;
• no transfer of certain areas of land to the shire council for parks, environmental and other public purposes.
All of the above works are to be undertaken by the purchaser. The vendors are selling the land "as is" and will do none of the above activities.
There is no level of development of the land beyond that necessary to secure council approval for the subdivision.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 sections 9-20 & 195-1.
Reasons for decision
Carrying on an enterprise
Section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides the definition of enterprise for GST purposes. This definition 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.
The definition of 'business' in section 195-1 of the GST Act is the same as that in section 995-1 of the Income Tax Assessment Act 1997. The meaning of 'business' is considered in Taxation Ruling TR 97/11 which discusses the main indicators of carrying on a business.
In order to be conducted 'in the form of a business' the activities would need to have the essential appearance or characteristics of a business.
In this case the property has been used to operate a farming business throughout the ownership period; however the operations have substantially diminished over the past five years. Currently the activities consist of running a small number of cattle on the land. No profit is made from these activities.
The registered proprietors of the land (vendors) engaged XX Pty Ltd to assist in the sale process with the objective of realising the highest possible sale price.
In this case there is clearly an intention to make a profit. However, the vendors have held the land for many years, there is no level of development of the land beyond that necessary to secure council approval for the subdivision and the vendors are selling the land "as is".
Therefore, based on the facts provided, after weighing all the relevant indicators, we are satisfied that the vendors' activities would not amount to a business of land development.
However, the term 'enterprise' also includes an activity or series of activities carried on 'in the form of an adventure or concern in the nature of trade'. An adventure or concern in the nature of trade may include isolated transactions that do not amount to a business, but which have the characteristics of a business deal.
The question of whether an entity is carrying on an enterprise often arises where there are 'one-off' property transactions. The decision to be made is whether the activities are an adventure or concern in the nature of trade as opposed to the mere realisation of a capital asset.
Miscellaneous Taxation Ruling MT 2006/1 sets out guidelines on the meaning of the word 'enterprise' for the purpose of entities' entitlement to an Australian business number (ABN). Goods and Services Tax Determination GSTD 2006/6 confirms that the principles in MT 2006/1 apply equally to the term 'enterprise' for GST purposes.
Paragraph 265 of MT2006/1 details a list of factors that provide assistance in determining whether activities are an adventure or concern in the nature of trade. If several of the factors are present it may be an indication that an adventure or concern in the nature of trade is being carried on.
In this case, the vendors have held the land for some time and currently the activities consist of running a small number of cattle on the land. No profit is made from these activities.
The vendors are selling the land "as is" and the activities carried out by the vendors would not go beyond what is required by council's regulations.
We acknowledge that the aim of the registered proprietors of the sale of the land is to realise the highest possible sale price. However, this fact alone is not detrimental to the conclusion that the sale may not be an adventure or concern in the nature of trade. We refer to paragraph 244 of MT 2006/1 which states:
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.
Having applied all the principles in MT 2006/1 to the present circumstances, we conclude that the vendors' subdivision and development of their land for sale, does not amount to an enterprise for GST purposes. The sale of the land is regarded as the mere realisation of a capital asset. The registered proprietors of the land will not be required to be registered for GST. Consequently, the sale of the land will not be subject to GST.
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