GST, Supply of Property & Requirements to Register
As housing prices across Australia accelerate through a combination of ultra-low interest rates, strong consumer confidence and low supply, so too does the increase in mums and dads looking to capitalise on this trend. Where these individuals are not registered for GST, the primary question is, will their proposed property transaction trigger a requirement for them to register?
As with most tax issues, the answer to this is, that it depends on their circumstances. An entity is required to be registered for GST if it satisfies the 2 limbs of section 23-5 of the GST Act :
(1) the entity is carrying on an enterprise (s23-5(a)); and
(2) the entity’s GST turnover is at or above the registration turnover threshold (s 23-5(b)).
The term enterprise is defined for GST purposes in section 9-20 of the GST Act and includes, among other things, an activity or series of activities done:
- in the form of a business (paragraph 9-20(1)(a)) or
- in the form of an adventure or concern in the nature of trade (paragraph 9-20(1)(b)).
Miscellaneous Taxation Ruling MT 2006/1, The A New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number provides the Tax Office view on the meaning of ‘enterprise’ for the purposes of entitlement to an ABN.
Of relevance is paragraph 245 of MT 2006/1 which refers to ‘the badges of trade’ with paragraphs 247 to 257 discussing the various ‘badges of trade’ that may be taken into account when determining whether assets have characteristics of ‘trade’ and are held for income producing purposes, or either as an investment asset or for personal enjoyment. Some of these include:
- intention of the taxpayer to engage in commercial activity;
- an intention to make a profit from the activity;
- the recurrent or regular nature of the activity;
- the activity is systematic, organised and carried on in a business-like manner;
- the activities are of a reasonable size and scale;
- a business of product; and
- the entity has relevant knowledge or skill.
While an activity such as the selling of an asset may in itself amount to an enterprise, this needs to be viewed in the context of other activities leading up to the sale to determine if an enterprise is being carried on.
For example, where an individual subdivided property, part of which formed their primary residential premises and the sale of the subdivided portion of the property was not conducted in a business-like manner; the property was not treated as a ‘business’ asset and expenses relating to the subdivision of the property were not claimed as a business expense, it is unlikely that the individual is conducting an enterprise and therefore they will not be required to register.
As the individual is not required to be registered for GST, the sale of the property would not meet the definition of a ‘taxable supply’ and they would not be liable for GST on the sale in accordance with section 9-40 of the GST Act.
It is important that there is supporting evidence to substantiate this position as the risk of getting this issue incorrect can be costly. We recommend this issue be considered as part of the cost analysis of any property project as the GST component can make a sizeable difference in profitability.
If you would like to discuss any of the above matters further, please contact Mimi Ngo.
 A New Tax System (Goods & Services) Act 1999 Commonwealth (the GST Act).