Private ruling: Property – Subdivision – mere realisation and GST
Date of advice: 8 February 2019
Published: May 2019
Ruling period: Year ended 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020 | Year ending 30 June 2021
Date scheme commenced: 1 July 2017

Ruling: Q1: Will the sale of property that will be subdivided in two stages, stage one being six lots and stage two being six lots be deemed to be a mere realisation of an asset? | A1: Yes. The proceeds represent a mere realisation of a capital asset and any capital gain made on the sale of the property will be assessable under the capital gains tax (CGT) provisions in Part 3-1 of the Income Tax Assessment Act 1997 (ITAA 1997). The proceeds you receive from the development of your land are not ordinary income and not assessable under sections 6-5 or 15-15 of the ITAA 1997. | Q2: Is the sale of the six lots in stage one and the six lots in stage two a taxable supply? | A2: No. The requirements of a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) include that you are registered or required to be registered for GST. Having applied all the principles in Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number to the present circumstances, we conclude that the sale of the lots does not amount to an enterprise for GST purposes. We do not consider your activities in relation to the subdivision of the land and sale of the vacant lots amounts to an enterprise in their own right. As such, the sales of the vacant subdivided lots do not meet the definition of a ‘taxable supply’. It follows that, you do not satisfy section 9-40 and are not liable for GST on the sale of the property.

Relevant facts and circumstances: You are an Australian resident for taxation purposes. You do not have an ABN nor are you registered for GST. You have an entity that carries on a farming business and is registered for GST. The entity’s income is shared equally. You own farmland which you purchased pre 20 September 1985. You built your main residence on your land pre 20 September 1985. The farmland is used for the farming business. You have used the land solely for that purpose since acquisition. Post 20 September 1985, you were gifted land owned by a relative (the land). The land consists of a farm shed. You have also utilised this land for the farming business. The property has been zoned as Rural Living. No improvements have been made to the property since your ownership began. You are planning to transition to retirement. You do not have a current valuation of the undeveloped land. You are subdividing the land in two stages. Stage one will consist of the subdivision of part of the property into six lots. Stage two will go ahead on the remaining part of the X acres of land if Stage one is successful. Stage two will also consist of six lots. You obtained advice from an engineer and surveyor prior to entering into the subdivision activities. You engaged a surveying company to plan the subdivision an engineer to carry out the various required tasks. The quote associated with the subdivision included: ● Preliminaries ● Earthworks ● Pavement ● Hotmix ● Driveways ● Stormwater ● Topsoil ● Services trenches A revised quote included the following activities associated with the subdivision: ● Lesser sub-base pavement depth ● Tow coat seal in lieu of 40mm hotmix ● 450mm blackmax in lieu of 600mm (although lengthened by 5 metres) ● Inclusion of sewage work (water fees & connection not included) You are undecided if you will engage the services of a real estate agent or sell the lots yourself. The subdivision activities will be privately funded through savings. You are completing the minimum works required by the local government authority to approve the subdivision. You have never been involved in subdivision activities or business of land development in the past and do not plan to undertake these activities in the future. You commenced the subdivision activities which were completed within six months. You are currently waiting for titles to be issued. No building will be erected on the land.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 10-5 | Income Tax Assessment Act 1997 section 102-5 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 112-25 | Income Tax Assessment Act 1997 section 995-1 | A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 9-10 | A New Tax System (Goods and Services Tax) Act 1999 section 9-20 | A New Tax System (Goods and Services Tax) Act 1999 section 195-1