Taxpayers entering commercial transactions involving large property purchased often (incorrectly) assume that these allow them to register for and claim GST. A recent case highlighted the need to ensure you have a “taxable activity” before you go ahead and claim GST.
As a reminder a taxable activity is defined as:
“Any activity which is carried on continuously or regularly by any person, whether or not for a pecuniary profit, and involves or is intended to involve, in whole or in part, the supply of goods and services to any other person for a consideration; and includes any such activity carried on in the form of a business, trade, manufacture, profession, vocation, association, or club.”
Some of the key points of this definition which are sometimes over looked is the need for an activity that is carried on continuously or regularly. A one off or limited number of transactions involving little or no active involvement by the taxpayer will not pass this test.
In TRA case 024/15 the taxpayer (a trust) purchased a block of land containing a mix of planted pine, and native regeneration. The taxpayer argued that they purchased that land for the carrying on of a taxable activity including three different supplies:
a. Subdivision. The courts found that the only work the trust did relating to possible future subdivision of the land was not enough to say that a subdivision “activity” existed. Arguably some related entities had taken steps towards advancing a subdivision, but these could not be considered activity of the taxpayer trust.
b. Supply of interests in land. Although there was a later granting of forestry and other rights (at nominal values) to related entities, the court found that this activity had not commenced during the periods in dispute and while it may have been identified as a potential future supply at the time of purchase, the decision to commence this activity would not take place for a long period of time.
c. Forestry. The land contained planted exotic forests, but the taxpayer took none of the usual activities involved with a forestry business (e.g. pruning, thinning and other maintenance). Merely leaving the trees to grow on their own was not enough to be an “activity”.
No input tax claim on the purchase of land was allowed.
This is an important reminder to check that an activity does exist, and that it is or will be carried on “continuously or regularly” before taking those steps to register for and claim GST on a purchase.