In January 2012 the ATO published over 80 private rulings dealing with GST issues, a busy month given the holiday period.

Discussed below are some of the more interesting rulings.  They are all about real property, which continues to raise difficult issues.

Subdivision of Property and Enterprise

• The Private Rulings Register contains a large number of rulings dealing with the issue of whether a real property owner is required to register for GST where the owner looks to subdivide and sell the property.  There is no easy test to determine which side of the line the entity sits (i.e., whether there is simply the realisation of a capital asset in a profitable way, or the entity changes its purpose and commences to carry on an enterprise).  MT 2006/1 provides a helpful outline of how the Commissioner will approach such issues, but in each case it is a question of fact and degree, and it is something upon minds may differ.
• The following three rulings published in the same month show how difficult the issue is.

GST and subdivision of property – No 1011986198237

• When regard is had to the facts of this ruling, I consider that the matter is close to the line and while the Commissioner considered that an enterprise was carried on, it could well be argued that this was not the case.  The ruling is a good example of how difficult this area of the law can be – not just in GST, but also in the area of income tax.
• The facts can be summarised as follows:

1. the entity acquired the property pre-2000 for the purposes of constructing a family home and since than has used it as the principal place of residence.  Improvements were made to the property, including a family home, tennis court, swimming pool, and barn.  The entity is approaching retirement and is finding the broadacre lifestyle tiring.
2. The property has been recently rezoned from rural to residential and the entity has engaged a consultant to advise how to sell the property and realised the increased value
3. The entity decided to proceed with the subdivision, which will proceed in stages with the entity being required to construct an access road and to connect services to the lots.  Houses will not be constructed on the lots and the entity will not be involved in the sale or marketing of the completed lots.  The entity simply plans to sell the subdivided lots.
4. The entity has no history of property development and does not intend to undertake any further development activities in the future.
5. The entity will preserve the family home on one of the subdivided lots and continue to live there.

• In finding that the entity was carrying on an enterprise, the Commissioner adopted the approach of looking at “the overall impression gained after examining the activities as a whole and the intention of the taxpayer undertaking the activity.  The Commissioner found that it was relevant that the entity had engaged a project manager to oversee the subdivision process and had employed an agent to undertake the sale of the subdivided lots; and that the council had required that certain things be done as part of the subdivision; and that the entity will borrow money to undertake the project.
• It may be that borrowing money to undertake the project may indicate the carrying on of an enterprise, one may have cause to question the relevance of engaging an agent to sell the property or a project manager to assist a person to subdivide the property.  Also, that the council may impose conditions on the subdivision is also arguably of questionable relevance.  Based upon the facts, it would appear that the entity is doing the bare minimum to sell the lots in a subdivided form.  One could argue that the entity was a unlucky.

GST and subdivision of land No.101201445746

• the facts of this private ruling are almost identical with the Commissioner coming to the same finding.  One wonders whether this signals a tightening of approach by the Commissioner on what constitutes an enterprise where real property is subdivided and sold.

GST, taxable supplies and sale of subdivided property – No 1012020785328

• this application involved very similar facts, but the Commissioner found that no enterprise was carried on.  The similar facts are as follows:

1. the premises were used as the main residence and a decision was made to vacate the premises to reside in a smaller home
2. it is intended to submit a development application to the local council seeking permission to subdivide the property and sell as vacant land – nothing will be built on the land or works undertaken beyond the minimum requirements necessary to satisfy the development application
3. consultants and contractors will be engaged to perform the work

GST and attribution of input tax credits – No. 1012014812230

• the question here was whether the purchaser under a purchase of commercial property was entitled to attribute input tax credits on the whole of the purchase price upon the payment of the “deposit” payable under the contract, which was to be paid in two separate instalments
• not surprisingly, on the basis that the amounts constituted a valid deposit, the Commissioner found that Division 99 applied and attribution was deferred until the earlier of settlement or forfeiture
• what is interesting is that the amounts exceeded 10% of the purchase price and the ruling provides a helpful analysis of the Commissioner’s view of what constitutes a valid deposit (particularly where that amount exceeds 10% of the purchase price)
• also, the ruling notes that in GSTR 2000/28, the Commissioner considers that a contract for the sale of land does not constitute an invoice for GST purposes (which would trigger attribution) – this is a somewhat controversial view – now that taxpayers have objection and review rights on private rulings, it may not be too long before this issue is considered at a higher level

LIST OF RULINGS

Taxable supplies

• GST and out of court settlements – whether GST payable on settlement of claim by owner of property for rectification of defective works on the property
• GST and grants – whether GST is payable on a grant received from X (an overseas entity) to organise a conference held in Australia for people from different parts of the world
• GST and payments from a government department – whether making a taxable supply when receive payment from a government department under an agreement with them – whether an outstanding liability for refunds of previously remitted GST – whether outside four year limitation period
• GST and solar electricity rebate – whether electricity retailer has an obligation to pay GST to consumer who is registered for GST and supplies solar generated electricity to the grid
• GST and specialist pathology services – whether making taxable supplies of services when providing specialist pathology services to students under an agreement with the school
• GST and tour guide services – whether GST payable on supplies of tour guide services to foreign tourists in Australia
• GST and sale of imported goods – whether internet-based seller of goods makes a taxable supply when sell imported goods to customers in Australia
• GST and connected with Australia – whether liable to pay GST on the supply of goods to Australian customer where goods not imported into Australia
• GST and in specie distribution – whether GST is payable on the supply of leased property by trustee to unregistered beneficiaries
• GST and a settlement payment – whether Australian company liable for GST in respect of a settlement payment received under a settlement deed
• GST and boat charter – whether GST was payable in respect of the entire charter or only to the extent within Australian waters
• GST and Trustee Services – whether supply of trustee and investment management services subject to GST
• GST and tutoring services – whether tutoring services subject to GST

GST-free supplies

• GST and Food – whether hot soup served in a take away container GST free – whether plain rice not kept hot and served in take away containers GST free
• GST and food products – whether the supply of paella, meat patties, meat nuggets, crepes with a meat filling and filo with curried meat GST free or taxable
• GST and Dukkah – whether the supply of dukkah is GST-free
• GST and the importation of herbal tea – whether GST payable on the importation of herbal tea – no GST liability on a non-taxable importation of a GST-free supply
• GST and training courses – whether GST applies to nationally recognised and accredited courses undertaken by trainees who have traineeships with government agencies – whether GST applies to non-accredited training courses
• GST free sale of a going concern – whether the sale of land, together with any improvements and development project a going concern – if not a going concern, whether eligible to apply the margin scheme
• GST and medical aids and appliance – whether the supply of mattress protectors, quilt protectors and pillow case protectors GST-free under s 38-45 as the supply of a medical aid or appliance
• GST and food – whether the supply of a product GST-free
• GST treatment of pre-packaged soft serve ice-cream base – whether supply of frozen soft-serve base GST free
• GST treatment of blanched peanuts – whether supply of blanched peanuts GST-free – whether taxable as having been processed or treated
• GST and medical aids & appliances – whether GST payable on the sale of electronically adjustable and manually adjustable beds, mattresses and pillows
• GST and sale of food product – whether supply of product is GST-free
• GST and food – whether sale of product made of dehydrated fruits and containing sweetener GST or taxable
• GST and supply of prescription medication for cosmetic procedures – whether supply of prescription medication and the injection of botox and dermal filler GST free or a mixed supply
• GST and supply of remedial massage services – whether the supply of remedial massage services GST free or taxable
• GST and supply of a going concern – whether all the payments received for supply of business, including stock, GST free
• GST and cake products – whether the supply of cake products GST
• GST and sale of farmland – whether the supply of tree plantation property GST free as the sale of farmland
• GST and food – whether sale of  food product constituted by food in cardboard wrapper, food in plastic container and dried food in cellophane packet GST free – consideration of the meaning “platter” of food
• GST and food – whether the supply of a dried product for the purpose of making jams is GST free
• GST and food – whether supply of freeze-dried and dehydrated product GST free
• GST and international services – whether the supplies of services to B (non resident) under a management agreement GST free under s 38-190(1)
• GST and acquisition of a supply of a going concern – whether the acquisition of a hotel business is an acquisition of a going concern

Enterprise

• GST and registration – whether taxpayers developing several parcels of land carrying on an enterprise and required to register – whether of revenue nature or realising capital assets
• GST and disposal of a duplex – whether sale of property by property developers used as main residence subject to GST
• GST and subdivision of property – whether proposed activities in connection with subdivision of family home and sale of subdivided lots carrying on an enterprise – whether sale of subdivided lots excluded from turnover test as sale of capital assets
• GST and subdivision of land – whether proposed sale of subdivided land subject to GST – whether carrying on enterprise
• GST and sale of property – whether GST payable on the sale of Lot used for farming – whether enterprise carried on
• GST and sale of property – whether company reinstated for the purpose of selling remaining lot of land carrying on an enterprise
• GST, taxable supplies and sale of subdivided property – whether the sale of subdivided lots a taxable supply – whether carrying on an enterprise

Other

• GST and lost records and lodgement – construction of outstanding BAS when all business records are lost or destroyed
• GST and representatives of incapacitated entities – whether Receiver has a GST liability in regard to an increasing adjustment in respect of acquisitions made prior to appointment – whether Receiver required to notify the Commissioner of the adjustments
• GST and insurance – whether the Authority’s domestic building insurance policy is an ‘insurance policy’ within the meaning of s 195 of the GST Act – whether the Authority is an insurer for the purposes of s 78-10 of the GST Act – whether Authority entitled to a decreasing adjustment under s 78-10 and 78-15 equal to 1/11th of the domestic building insurance settlement amount paid to home-owner
• GST and electronic tax invoice – whether an electronic tax invoice satisfies the requirements under s 29-70 of the GST Act
• GST and refund of overpaid GST on gambling supplies – whether entitled to reduce global GST amount calculated under s 126-10, whether s 105-65 of Schedule 1 to TAA applies, period of refund claim
• GST and supplies made before and after the appointment of a representative – whether representative liable to GST where; work completed and invoices issued prior to appointment; where work completed prior to appointment but invoices issued after appointment; where work completed during receivership and invoices issued after appointment
• GST and refund of deferred management fee – whether Commissioner will refund overpaid GST on deferred management fee on basis that once ruling made the overpaid GST will be refunded to recipient
• GST instalment elections –  whether entitled to pay GST by instalment
• GST and tax invoices – requirements to show ABN details where parties acting on behalf of others
• GST and recipient created tax invoices – whether the Commissioner will allow recipient created tax invoices to be issued