Private ruling: GST and registration
Published: September 2011

Ruling: Q1: Is the entity required to register for the goods and services tax (GST)? | A1: No, the entity is not required to register for GST.

Relevant facts and circumstances: You are an entity and you are registered for GST. You are the registered owners of a block of land with your principal place of residence on it. This has been your residential home for more several decades. No part of the land has been utilised for any income producing purpose during the period of ownership - it has always been your principal place of residence. You have decided to sell the land. Instead of selling the land as one block to a developer, you have decided to develop the land into a number of residential blocks. The reason for undertaking the subdivision of land is because other developers do not want to pay what is worth for a single block. Also, you are near retirement and want to downsize. You intend to sell all the lots and move elsewhere. You intend to use part of the proceeds from the sale of the lots to acquire another place of residence for your retirement. No buildings will be erected on the land. The developed lots will be sold as vacant land only. The plan is to subdivide, sell immediately and retire. You are not property developers by profession. You have never developed any other properties in the past and have no plans for any future subdivisions after this project. You are simply trying to maximise the value of your land to fund your retirement. The principal place of residence was recently demolished. Physical site work has started and subdivision has commenced. The planning and financing has taken around one year. You will rely on specialised contractors for conducting various works, following plans submitted with the help of professional planners; and to some extent, for the day to day management. However, you will also be involved in the project. Finance is via a loan and cash savings. Development costs include Council charges and payments to various contractors. You have provided a copy of the development approval from the Council for the subdivision of your land. The document shows the works that are required for the subdivision. You have also provided a copy of the tender documentation for the required development works, and a copy of the quotation to do the development works. You are doing the minimum amount of work to allow the land to be subdivided in accordance with the Council's terms and conditions. You are not doing any work above and beyond what is required for the approval. Your current income earning activities do not involve property development. Your current income has been derived from alternative sources.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 9-20, | A New Tax System (Goods and Services Tax) Act 1999 section 23-5 and | A New Tax System (Goods and Services Tax) Act 1999 section195-1.

Reasons for decision: Summary: Section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that an entity is required to be registered if it is carrying on an enterprise and its GST turnover meets the registration turnover threshold. Therefore, in your case, we need to consider firstly whether your activities of land subdivision and sale constitute an enterprise. | Detailed Reasoning - Are you carrying on an enterprise?: Section 9-20 of the GST Act provides the definition of enterprise for GST purposes. This definition 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; or on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in the property. The definition of 'business' in section 195-1 of the GST Act is the same as that in section 995-1 of the Income Tax Assessment Act 1997 . The meaning of 'business' is considered in Taxation Ruling TR 97/11 which discusses the main indicators of carrying on a business. Some of those indicators are: · a significant commercial activity · a purpose and intention of the taxpayer to engage in commercial activity · an intention to make a profit from the activity · the activity is or will be profitable · the recurrent or regular nature of the activity · the activity is carried on in a similar manner to that of other businesses in the same or similar trade · activity is systematic, organised and carried on in a businesslike manner and records are kept · the activities are of a reasonable size and scale · a business plan exists · commercial sales of product, and · the entity has relevant knowledge or skill. There is no single test that determines whether a business is being carried on. In order to be conducted 'in the form of a business' the activities would need to have the essential appearance or characteristics of a business. In your case, there is clearly an intention to make a profit. It is likely that the subdivision will be profitable. However, you have held the land as your residence, for many years. You have not developed land prior to this subdivision. Therefore, based on the facts provided, after weighing all the relevant indicators, we are satisfied that your activities do not amount to a business of land development. However, the term 'enterprise' also includes an activity or series of activities carried on 'in the form of an adventure or concern in the nature of trade'. An adventure or concern in the nature of trade may include isolated transactions, that do not amount to a business, but which have the characteristics of a business deal. The question of whether an entity is carrying on an enterprise often arises where there are 'one-off' property transactions. The decision to be made is whether the activities are an adventure or concern in the nature of trade as opposed to the mere realisation of a capital asset. Miscellaneous Taxation Ruling MT 2006/1 sets out guidelines on the meaning of the word 'enterprise' for the purpose of entities' entitlement to an Australian business number (ABN). Goods and Services Tax Determination GSTD 2006/6 confirms that the principles in MT 2006/1 apply equally to the term 'enterprise' for GST purposes. Paragraph 265 of MT2006/1 details a list of factors that provide assistance in determining whether activities are an adventure or concern in the nature of trade. If several of the following factors are present it may be an indication that an adventure or concern in the nature of trade is being carried on. The factors are: · there is a change of purpose for which the land is held · additional land is acquired to be added to the original parcel of land · the parcel of land is brought into account as a business asset · there is a coherent plan for the subdivision of the land · there is a business organisation - for example a manager, office and letterhead · borrowed funds financed the acquisition or subdivision · interest on money borrowed to defray subdivisional costs was claimed as a business expense · there is a level of development of the land beyond that necessary to secure council approval for the subdivision · buildings have been erected on the land. In addition, paragraph 266 of MT 2006/1 states: In determining whether activities relating to isolated transactions are an enterprise or are the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each particular case. This may require a consideration of the factors outlined above, however there may also be other relevant factors that need to be weighed up as part of the process of reaching an overall conclusion. No single factor will be determinative rather it will be a combination of factors that will lead to a conclusion as to the character of the activities. In your case, you have acquired the land for residential use and this has been your private residence for several decades. No part of the land has been utilised for any income producing purpose during the period of ownership. You are now close to retirement age and want to downsize and move elsewhere. The reason for undertaking the subdivision of land is because other developers do not want to pay what is worth for a single block. Your plan is to subdivide, sell immediately and retire. The developed lots will be sold as vacant land only. No buildings will be erected on the land. Specialist subcontractors would be engaged to carry out most of the subdivision work, although you will also have some involvement in the day to day management of the project. The scale of the activities undertaken suggests that the subdivision and development of the property has a commercial character. However, you have advised that the activities do not go beyond those necessary to obtain council's approval. Other relevant factors are: · the fact that you have not been involved in any land subdivision or other property development activities in the past, and you do not plan to do so in the future; and · the motive behind the subdivision and development being your financial security on retirement. We acknowledge that the sale of the subdivided lots is more profitable than the sale of the property as one large block. However, this fact alone is not detrimental to the conclusion that the sale may still be a mere realisation of a private asset. We refer to paragraph 244 of MT 2006/1 which states: An adventure or concern in the nature of trade includes a commercial activity that does not amount to a business but which has the characteristics of a business deal. Such transactions are of a revenue nature. However, the sale of the family home, car and other private assets are not, in the absence of other factors, adventures or concerns in the nature of trade. The fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature. Having applied all the principles listed above to your circumstances, we conclude that the subdivision and development of your land does not amount to an enterprise for GST purposes. The development of the property and the subsequent sale of the subdivided land as vacant lots are regarded as a mere realisation of a private asset. | Detailed Reasoning - GST registration: We have concluded above that, in subdividing the land and selling the vacant subdivided lots, you are not carrying on an enterprise. Therefore, you do not satisfy the first essential condition that could eventually lead to you being required to be registered for GST in relation to your activities in connection with that land. As such, you will not be required to register for GST. Note that the findings of this ruling do not apply to subsequent ventures of such a nature.

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