Private ruling: GST - property
Date of advice: 31 October 2022
Published: 9 January 2023
Ruling period: Financial years ending 30 June 20XX to 20XX
Date scheme commenced: The date this ruling is issued

Ruling: Q1: Is the Trustee the Superannuation Fund (the Trust) carrying on an enterprise for the purposes of the GST Act in relation to the subdivision of the property? | A1: Yes. Paragraph 9-20(1)(da) of the GST Act provides that an enterprise is an activity, or series of activities done by a trustee of a complying superannuation fund. | Q2: Will the sale of the subdivided lots be subject to GST? | A2: Yes. The Trust will be making a taxable supply of real property when the subdivided lots are sold. | Q3: Is the Trust required to be registered for goods and services tax (GST)? | A3: The Trust will be required to register for GST as the Trust's turnover will exceed the registration turnover threshold (currently $75,000) when the proposed sales of the separate subdivided properties are finalised.

Relevant facts and circumstances: • A large property was purchased by a trustee for a complying super fund. • The property was purchased as an investment with the expectation of capital growth. • The property, when purchased, was subject to an approved development application (DA) to subdivide the property into X lots. • Despite the DA approval being in existence at the time of purchase, it was considered that there could be significant capital growth if held for the medium to long term and, as a result, the decision was made not to subdivide the property at this time. • An auction was held, seeking to sell the property as a whole and it failed to sell. • Real estate agents advised that, based on market feedback, there would be more interest and potential sale if the property was subdivided into the X blocks as detailed in the DA approval. • A valuation report was obtained. • The decision was made to subdivide the property into X sites as per the DA approval and this will occur as follows: - Appointment of an unrelated company as project manager that will undertake all activities required, - A project manager company will be engaged to undertake and manage all these matters, - The activities will involve raising the level of the land constructing driveways and connecting utilities to each block. - A real estate agent will be appointed to sell the new blocks off the plan. - A lawyer will be appointed to draft up the necessary contracts of sale. - The costs associated with the subdivision will be funded from a rollover of monies from another complying superannuation fund. • The superfund holds an Australian Business Number (ABN) but is not currently registered for goods and services tax (GST).

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-20(1)(da) | A New Tax System (Goods and Services Tax) Act 1999 section9-40 | A New Tax System (Goods and Services Tax) Act 1999 paragraph 188-25(a) | A New Tax System (Goods and Services Tax) Act 1999 section 23-5

Reasons for decision: Summary: Under section 9-5 of the GST Act, an entity makes a taxable supply where the supply: 1. is made for consideration; and 2. is made in the furtherance of an enterprise being carried on; and 3. in connected with the indirect tax zone; and 4. is made by a supplier who is registered or required to be registered for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. In this case when the subdivided properties are sold, the supplies will consist of properties which are located in an indirect tax zone and the supplies will be for consideration. Therefore, the sale of the subdivided properties would satisfy two elements outlined above (1&3). Accordingly, we need to determine whether the other elements (3&4) would also be satisfied. If this is the case, the supplies of the subdivided properties would satisfy all requirements of section 9-5 of the GST act and would be a taxable supply. | Detailed Reasoning - Is the superfund carrying on an enterprise: The term enterprise is defined for GST purposes in subsection 9-20(1) of the GST Act and includes, among other things an activity or series of activities done: (a) in the form of a business; or (b) in the form of and adventure or concern in the nature of trade; or (da) by a trustee of a complying superannuation fund, or if there is no trustee of the fund, by the person who manages the fund. The purpose of a superannuation fund is to provide a benefit to a beneficiary in the form of a pension or lumpsum payment. The superfund purchased a property for investment purposes with the hope that the property would increase in value. Any proceeds from the future sale of the property, would be for the benefit of the beneficiary of the fund. Purchasing a property for investment purposes and holding the property with the expectation of capital growth shows the intention behind the purchase by the superfund was a profit making one to benefit the beneficiaries of the super fund. The engagement of a third party to oversee and project manage the subdivision of the property as well as a real estate agent to market and sell the subdivided lots does not diminish the superfunds intention to make a profit when selling the subdivided lots, as it is feasible that where a taxpayer lacks the necessary skills or knowledge to carry out the subdivision and marketing themselves, they would engage a suitably qualified third party. The selling of the subdivided blocks without constructing any buildings on the lots does not change the fact that the superfund will be selling real property. These points were discussed in detail in the Administrative Appeals Tribunal (AAT case) Collins & Anor ATF The Collins Retirement Fund v FC of T 2022 ATC 10-627 (Collins) . In ( Collins), at paragraphs 63 and 64 the following comments are made: 63. That the applicant, with no professional experience in land development, should engage others to carry out works and market the subdivided lots is scarcely surprising. The engagement of contractors to provide advice and carry out engineering and construction works and real estate agents to market land, is I would have thought, a hallmark of modern subdivision projects. While that may mean the Mr Collins was relatively passive in respect of these activities, I do not accept that this weighs heavily in the applicant's favour in the context of a development of this nature which involved the undertaking of extensive skilled work. 64. Likewise, that the applicant chose to sell vacant land and, as the applicant expressed it, left further profits on the table by not constructing and selling houses on the lots for further profit, in my view provides little assistance to the applicant. Every operator of a land development business that chooses to sell allotments rather than house and land packages has made such a choice. 65. The applicant also noted that the sale proceeds from the land sales were reinvested in capital assets of the applicant fund. Respectfully, I am unable to see how that is relevant to the character of the antecedent subdivision and sale of the lands from which those proceeds were generated. It is commonplace for an entity, especially a superannuation fund, to invest excess income in income-earning capital assets; that does not affect the character of the income. Therefore, based on the facts of this case and paragraph 9-20(1)(da) of the GST Act, the superfund are carrying on an enterprise of property development in relation to the property in question. | Detailed Reasoning - Question 3: We now have to consider whether the superfund is required to register for GST. Section 23-5 of the GST Act provides that you are required to be registered for GST if you carry on an enterprise and your GST turnover meets the registration turnover threshold (currently $75,000). Under subsection 188-10(1), an entity has a GST turnover that meets a turnover threshold if: (a) Your current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the turnover threshold; or (b) Your projected turnover is at or above the turnover threshold. Subsection 188-15(1) of the GST Act states that your current GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during the 12 months ending at the end of that month, other than: (a) Supplies that are input taxed; or (b) Supplies that are not for consideration (and are not taxable supplies under section 72-5); or (c) Supplies that are made in connection with an enterprise that you carry on. Subsection 188-20(1) of the GST Act discusses how to calculate your projected turnover: (1) Your projected turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during that month and the next 11 months, other than: (a) Supplies that are input taxed; or (b) Supplies that are not for consideration (and are not taxable supplies under section 72-5); or (c) Supplies that are not made in conjunction with an enterprise that you carry on. In Collins, the applicant argued that although carrying on an enterprise pursuant to paragraph 9-20(1)(da) of the GST Act they were not required to be registered for GST as the proceeds of the subdivided lots were excluded from turnover as they were capital in nature. Further in Collins, at paragraphs 20 to 26 the following comments are made: 20. In the income context, in determining whether the proceeds of sale of an asset are on the revenue or capital account, attention is focused upon whether the seller had an intention, at the time of acquisition of the asset, that the asset would be sought at a profit. The Commissioner submitted that for s188-25(a) purposes, the character of an asset must be determined at the time of the supply, describing this as a key point of distinction from the income tax framework. 21. As the Commissioner pointed out, the expression 'capital asset' does not appear elsewhere in the GST Act. Further, the context of the characterisation of the supply of an asset as a transfer of ownership of a capital asset in s 188-25(a) - in determining an entity's projected turnover - is quite different to the role played by the revenue/capital distinction in determining the accessibility of receipts or deductibility of outgoings or losses. 22. For instance, whether an amount is received in the course of a commercial or business-like transaction may be significant to or even determinative of whether the receipt is assessable to income tax. In contrast, the application of s188-25(a) will only arise for consideration where the supply under consideration is or would be made in the course of an enterprise the taxpayer carries on. 23. Further, as the Commissioner pointed out, the GST Act deals separately with supplies and acquisitions. Section 188-25(a) is only relevant to supplies. 25. These considerations point to whether the taxpayer has a profit-making intention or object at the time the relevant asset is acquired being of less significance than it is for the purposes of the capital vs revenue dichotomy in the income tax context. Accordingly, the Commissioner submitted that whether the taxpayer had a profit-making intention at the time of the acquisition of an asset is not determinative for s188-25(a) purposes. The focus must be on the supply of the time a supply of the asset is made (or is likely to be made). [...] 26. I respectfully adopt the proposition that for s 188-25(a) the character of an asset must be determined at the time the supply is made (or, I would add, likely to be made). In this case, as detailed above, it is considered that the superfund is carrying on an enterprise of property development. Whether or not the superfund will be required to be registered for GST when they sell the subdivided lots will depend on whether the GST registration threshold of $75,000 will be exceeded as a result of sales. Given that the superfund will be selling real property and each of the lots will sell for in excess of $75,000, the GST turnover for the superfund will exceed the GST turnover threshold of $75,000 and they will be required to be registered for GST.