• News

When is there an enterprise?

  • September 26, 2023

When is there an enterprise?


Last updated March 2023



Determining whether an enterprise exists for GST purposes, particularly in relation to small-scale property developments, is already difficult. A recent case makes the issue even more complex and raises concerns about the ATO’s approach.



  • Fundamental to the operation of the GST legislation in Australia is the concept of an enterprise. An entity cannot be registered for GST unless it is conducting an enterprise.
  • In various situations concerning isolated transactions and small-scale business style activities, it can sometimes be very difficult to determine whether an enterprise exists. This is particularly so in relation to many small-scale real property developments.

On 9 October 2020, the Small Business Taxation Division published its decision in relation to San Remo Heights Pty Ltd (SRH) and the Commissioner of Taxation [2020] AATA 4023. The case concerned whether SRH was conducting an enterprise. SRH lost the case and it was held that it was conducting an enterprise. There are some aspects of this case that are of concern in dealing with the issue of whether an enterprise exists.



For the purposes of this article, the definition of “enterprise” 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.

There are a number of other aspects to the definition of enterprise in section 9-20 of the GST law but they are not relevant for this article.
For there to be a taxable supply under the GST law, the supply must be made in the course or furtherance of an enterprise that is carried on (section 9-5).
When the GST law was enacted, the Government deliberately made the definition of “enterprise” very broad. Among other things, it used the words “in the form of” as an attempt to expand the reach of the definition of an enterprise.



The SRH case concerned a company that had purchased land in 1962. There was no evidence as to the purpose of the acquisition of the land at that time. The company conducted a sheep grazing enterprise and also a property rental enterprise. In addition, over the years, it had subdivided some of the land and sold the subdivided lots.
The subdivisions and sale of the land occurred over a very long period of time. The diagram below sets out what occurred.
In assessing the company’s net amount for GST purposes, for the December 2018 quarterly tax period, the Commissioner included GST on the sales of two lots. The company was registered for GST, but it argued that the sales or supplies of these parcels of land were not part of the enterprise for which the company was registered for GST. In support of this view, the taxpayer stated that the sole objective of the company disposing the vacant lots in question was to facilitate the closure of certain deceased estates and simplify the company’s ongoing affairs. The tribunal agreed that this was the company’s sole objective in selling off the two lots.
The company also asserted that there was no evidence of any business plan relating to property development or sale, or of the company undertaking land development and sale in a systematic, organised or businesslike manner. Further, the company had not registered any business name related to property development and did not employ any employees related to property development. In addition, the company had not claimed any expenses as a tax deduction in relation to the land in question.
The company bore the burden of proof that it was not conducting an enterprise in relation to the disposal of the parcels of land. It lost the case because it could not do this to the satisfaction of the tribunal.

The tribunal agreed with the taxpayer that the disposal of the property was not part of the sheep grazing or property rental enterprises. The disposals of the parcels of land needed to constitute an enterprise in themselves in order for GST to be applicable. The tribunal further said that an enterprise need not be determined with precision.
Unfortunately for the taxpayer, the tribunal concluded that there was no evidence that SRH acquired the property other than for commercial purposes. With the taxpayer being a company, there is the inference that the activities conducted by the company would be for a commercial purpose.
The taxpayer argued that the disposals of land over the years was at a relatively small scale and there were long periods between the subdivisions and the disposals of the property. Combined with the un-businesslike manner in which the disposals were made, the taxpayer argued that the tribunal should conclude that there was no enterprise. The taxpayer said that this was consistent with revenue law cases, such as Statham [1988], Casimaty [1997] and Williams [1972], which held that the subdivision and disposal of property was a mere realisation of a capital asset and was not a profit-making undertaking. Accordingly, there was no profit-making undertaking by SRH and therefore there was no business or adventure or concern in the nature of trade.



The tribunal found in favour of the Commissioner. This seems to be mainly because the taxpayer could not discharge the onus of proof that the Commissioner’s assessments were excessive. The taxpayer was required to discharge the notion advanced by the Commissioner that the disposal of the land was either the conduct of a business or transactions in the form of an adventure or concern in the nature of trade.
The tribunal concluded there was insufficient evidence to prove that the disposal or land was not for commercial purposes.
The issue of discharging the onus of proof was difficult for the taxpayer. It was put into the position of trying to prove that something had not happened. That is, it had to prove that it did not acquire the land for the purpose of resale at a profit. The land was originally acquired in 1962 and in 2020, when the case was being heard, the objectives of the original purchase of the land were lost to history.
It is much more difficult to prove that something did not happen than to prove that something did happen. If something did happen, there will be documents and records that will usually evidence the thing happening. When something does not happen, such contemporaneous records do not exist. Why would you create records for an event that has not occurred?
In relation to the income tax cases cited by the taxpayer, the tribunal quickly dismissed this argument by stating that those cases were dealing with another matter. (See discussion on this later.)
The tribunal concluded that, particularly in the context of a company, the circumstances were capable of constituting a series of activities in the form of a business. There was little discussion by the tribunal on whether the disposal of the land was an activity in the form of an adventure or concern in the nature of trade.



MT 2006/1 is the main ruling the ATO has released in relation to the question of what constitutes an enterprise. The prime purpose of the ruling is to determine whether an enterprise exists for the purposes of entitlement to an Australian Business Number under the Australian Business Number legislation. It is noted that GSTD 2006/6 confirms that, in the view of the ATO, MT 2006/1 has equal application to the meaning of “enterprise” for the purposes of the GST law.
In relation to whether activities are in the form of a business, the ruling discusses the generally well understood principles of what constitutes a business and what are the indicia that should be examined in relation to this.
Importantly, the ruling also discusses what the ATO considers to be the meaning of the phrase “in the form of an adventure or concern in the nature of trade”.
The ruling, correctly, points out that there is no definition of this term in the Australian law and it is a concept that has been borrowed from UK revenue law. The ruling states that, while UK law helps to understand the concept, it is considered that Australian revenue law and judicial decisions should be the starting point to give it meaning.
The ruling indicates that the term “an adventure or concern in the nature of trade” should be equated to the term “profit-making undertaking or scheme”. In Australian revenue law, the term “profit-making undertaking or scheme” is more familiar than the reference to an adventure or concern in the nature of trade. This is principally due to the use of the term “profit-making undertaking or scheme” in the former sections 26(a) and 25A of the Income Tax Assessment Act 1936 (ITAA 1936).
The ruling states that the term “profit-making undertaking or scheme” is like the term “an adventure or concern in the nature of trade” because they both concern transactions of a commercial nature that are entered into for profit-making but are not part of the activities of an ongoing business. Both terms require the features of a business deal.
The ruling also quotes the publication, Income Taxation in Australia, by Professor Parsons. In this work, Prof Parsons opines that an adventure in the nature of trade is equivalent to an isolated business venture as opposed to a continuing business.


In MT 2006/1, there is (helpfully) a discussion of whether an enterprise exists in relation to isolated sales of real property. This is a very common issue faced by accountants and tax agents advising clients on small-scale property developments. Unfortunately, it can be a very difficult area on which to give advice. The ruling states in paragraph 263:

“The issue to be decided is whether the activities are an enterprise in that they are of a revenue nature as they are considered to be activities of carrying on a business or an adventure or concern in the nature of trade (profit making undertaking or scheme) as opposed to the mere realisation of a capital asset.”

It can be seen from this quotation that the ATO considers the income tax treatment of an isolated real property transaction is fairly and squarely related to the question of whether there is an enterprise for GST purposes. Reassuringly, the ruling states that the Commissioner recognises that in some cases, practical difficulties may arise in deciding whether the activities involved in a particular subdivision of land amount to an enterprise.
In an isolated transaction involving the sale of land where the land was purchased with the intention of resale at a profit, which is considered by the ATO to be a transaction producing ordinary income, the Commissioner considers that these activities will be an enterprise.



Determining whether an enterprise exists for GST purposes, particularly in relation to small-scale property developments, is already difficult. Without trying to read too much into a decision by one senior member (R J Olding) of the Administrative Appeals Tribunal, this case has added to the complexity and the following aspects concern me.


ATO policy

I cannot help coming to the conclusion that the prosecution of this case by the ATO is contrary to what it has said in MT 2006/1. Looking at the facts of this case, and comparing them to other cases (including those mentioned above), I consider that the better view is that the disposal of this land was an affair of capital and not on revenue account. Disposing of 12 subdivided lots over a very long period of time is the realisation of an asset on a much lower scale as the cases mentioned earlier. Nevertheless, those cases decided that the gain on the disposal of the property was on capital account being the mere realisation of a capital asset. I consider that the better view is that SRH disposed of the subdivided lots as a mere realisation of a capital asset.
In MT 2006/1, the ATO clearly connects the idea of an enterprise for GST purposes with the idea of whether a revenue gain will be made on disposal of the particular thing being supplied (at least in the situation of an isolated disposal of real property).
Will the ATO now move to assess the taxpayer on some amount of a revenue gain for income tax purposes? If it does not, this would seem to be contrary to the principles the ATO sets out in MT 2006/1. I note that there was almost no discussion in the case concerning the income tax treatment of the disposal of the subdivided lots. However, there was a strong inference that the gains would be treated on capital account. There seemed to be no suggestion by the Commissioner that this treatment was in error. If that is the case, why did the ATO assess the taxpayer to GST, deny the taxpayer’s objection and then have the matter heard in the AAT?
I would very much like to know how the ATO reconciles its actions to MT 2006/1.


Comments by R J Olding (Senior Member)

Paragraph 38 of the decision says:

“In respect of whether the company’s activities were properly characterised as a series of activities in the form of an adventure or concern in the nature of trade, Mr Wright (the taxpayer’s counsel) referenced income tax cases in which it was held on the facts of those cases that activities involving the subdivision and sale of property did not constitute an adventure or concern in the nature of trade, or analogous expressions. Those cases concerned a different issue: whether the gain on sale was income and in particular whether the sales in question constituted mere realisation of a capital asset.” (Emphasis added)

With respect to senior member Olding, those cases did not concern a different issue. The issue of whether a gain on sale constitutes income, and in particular whether the sales were a mere realisation of a capital asset, is something that the ATO sees as being the same issue. (Refer to the earlier quote from paragraph 263 of MT 2006/1.)



The single question I have been most asked by accountants and tax agents in public practice is whether, in relation to small-scale property developments, an enterprise exists for the purposes of GST. There are probably hundreds of thousands of small-scale property developments that occur in Australia each year. In many of those circumstances those conducting the activities need to decide whether they should register for GST or not.
Every time this question is asked, the facts need to be weighed carefully and a balanced decision made by a person who is well-versed in the capital/revenue distinction and also the ATO rulings on this topic. Often this is difficult.
The SRH case makes this process even more difficult. If the case is not appealed, I would be interested to see what the ATO says in its decision impact statement (if one is issued) in relation to this case.