Private ruling: GST and Subdivision activities
Date of advice: 3 October 2017
Published: March 2018

Ruling: Q1: Will your supplies of the subdivided lots be taxable supplies pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes

Relevant facts and circumstances: This ruling considers the factual matters under Option 3 (described below) and the GST impacts if the development proposal as described in your application and subsequent correspondence and documents supplied proceeds. You are not currently registered for GST. You and your spouse purchased a property prior to September 1985 as your principal place of residence. The Property is approximately x acres. Your spouse passed away and their interest in the Property transferred to you in accordance with their Will. Your family trust, uses your Property for its primary production enterprise. The Family Trust has used the land since you purchased it for various primary production activities including purchase and sale of animals, and it continues to operate the primary production enterprise at your property. There is a written agreement between you and the Family Trust regarding the use of the Property for primary production purposes, however there has been no rent paid by the Family Trust to you. The primary production activities have always been carried on by you through the Family Trust. The Family Trust also owns a commercial property which is currently leased and a vacant block of land that is zoned commercial in. In 2000 you built residential units and you sold some and retained the balance for investment from which you derive rental income. You also own a commercial investment property which is leased. Your property was zoned ‘rural landscape interest’ at the time you purchased it. The Council subsequently rezoned it to ‘Green Wedge’. After the Council rezoning to ‘Green Wedge’, and over a decade ago, your neighbour initiated a rezoning application. You participated in this process because it impacted on your property. Your neighbour kept you abreast of the rezoning and you provided input to the process as to whether you agreed or disagreed with any part of the planning by the council. As a result of the rezoning your property is now covered by two zones, being a Township Zone and a Low Density Residential Zone. (Low Density Zone) Your intention at the time of your neighbour making the rezoning application was to run a market gardening business and in anticipation of this you built a dam. You are XX years of age and you have been diagnosed with a health issue. You are unable to maintain the land and the stress of doing such is affecting your health. You are almost retired (apart from allowing the primary production business to be run on your property) and are currently living off rental income from your other investment properties. Due to the above issues and your desire to fund your retirement and any future medical expenses, and to set aside funds for your children and grandchildren, you decided to look into selling the land zoned ‘Township Zone’. You considered the following option with your child: Option 1- Sell the whole property and move – (you have decided against this option). Option 2- Sell that part of the land zoned ‘Township’. You and your child had spoken to real estate agents to enquire about the value of the subjected land and if there were any interested buyers. You were worried as to what a developer might do to the property and the potential value that was presented by the agent for this parcel of land was not satisfactory. Option 3 - Subdivide and sell off the Township Zone land and retain the ‘Low Density Zone’. You have proceeded with this option for the following reasons: ● To allow you to continue to live close to your family. ● Sentimental value and ● Support your own retirement and your children and grandchildren. Your child, who is a solicitor, volunteered to assist with working through the above options and commenced enquiries with a real estate agent and other experts. You then sought subdivision approval for your property. You engaged various professionals to consult with you about your land options. They prepared reports to support your proposed application to the Council for a planning permit to subdivide your property. These reports were prepared in regards to the whole property to create a subdivision plan for the ‘Township Zone’ and the ‘Low Density Zone’. In 20XX you received a Stormwater Management plan and a Town Planning Report. The report considered the development against various requirements including: Public Lighting Walking and cycling Network objectives Public Open Space Provision objectives Solar Orientation of Lots Activity Centre Objective An Infrastructure Strategy report was also prepared. This dealt with the issues of Access/Roads, Drainage Facilities, Drinking water supplies, Sewerage Facilities and Power and Telecommunication facilities. You applied for and received a planning permit from the Council to subdivide your property In your ruling application and further confirmed in later correspondence, your intention is to develop, subdivide and sell the X lots. The Family Trust will continue to operate its primary production business of primary production on the Property except where the family home is located. The primary production operations will cease in the Township Zone when subdivision works commence. You have no intention at this stage of subdividing or developing the Low Density Zone. You will continue to live in your principal place of residence which is located in this zone. You have not tried to sell your property as a single lot and have not been approached by any potential buyers to purchase your property previously. Where a buyer makes a reasonable offer for the ‘Township Zone’ with Council permit attached, you would consider it, however you are proceeding with Option 3 as set out in the facts and circumstances. You will not build, nor engage any other entity to build, dwellings or other buildings on the lots. The lots sold will be fully serviced residential lots. The Council permit requires you to, amongst other things, to undertake and complete the following: ● a shared path and equestrian trail ● an agreement with a telecommunications network or service provider for the provision of telecommunication services to each lot ● the creation of a restriction to prohibit the construction of more than one single dwelling on each lot, and to control setbacks and fencing on specified lots ● a landscape plan for all public open spaces including streetscapes, parklands, water retention areas and details of the finishes to pathways and driveways, a planting schedule of approved species and street lighting, and ● before any road drainage works commence construction plans must be submitted showing amongst other things, street lighting, the location of service trenches and the vehicle crossovers to each lot. It is your stated intention to sell the fully serviced residential lots. This requires development works to be undertaken on your land as per the Council permit. Through this process experts will also be engaged, including civil engineers, town planners, and land surveyors. You will engage a real estate agent to market and sell the lots. If the real estate agent agrees, you will entertain private sales including sales to family members and friends. It is your intention to sell lots ‘off the plan’. You state that development costs will be funded by; ● accessing a line of credit ● accessing where necessary your superannuation ● accessing the deposit funds from ‘off the plan sales’ if early release is available, and ● if early release is not available, you will borrow the balance of the funds. You will provide all funds for the subdivision development works. You may engage the services of a project manager and pay them directly or pay the suppliers as directed by the project manager. You have not claimed as a tax deduction any costs incurred to date on the proposed property subdivision. The following documents provided with the Application for Private Ruling form part of the facts: Planning Permit; Town Planning Report; Stormwater Management Plan; and Infrastructure Strategy Report. Contentions You contend that: 1 The subdivision is an isolated transaction 2 There is no business organisation involved 3 There are no buildings to be erected on the lots 4 The development is not beyond what is necessary to secure council approval 5 Interest on borrowed funds is not intended to be claimed as a business expense, and 6 The reason for undertaking this development now is due to your age and ill health.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 9-5, | A New Tax System (Goods and Services Tax) Act 1999 9-20 and | A New Tax System (Goods and Services Tax) Act 1999 188-25.

Reasons for decision: Summary: In the reasoning for question 3 unless otherwise stated, ● all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) ● all reference materials referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au ● all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act | Detailed Reasoning - Will your supplies of the lots be taxable supplies pursuant to section 9-5 of the GST Act?: You and your spouse initially acquired the property pre 1985. In 200X, the Council rezoned your property to ‘Green Wedge”. Your spouse passed away in 200Y. A short time later your property was rezoned into ‘Low Density Zone’ and ‘Township Zone’. Your neighbour initiated this process and you had limited participation. Due to personal considerations you decided to look at options, with help from your child to sell your property either as a whole or in part. You were not able to get any reasonable offers and so you began considering the option of obtaining a Council Permit to develop and subdivide. This permit will allow you to either sell the ‘Township Zone’ as a whole with permit attached, or proceed to develop and sell the individual lots. You decided to develop and sell the lots in the ‘Township Zone’, and engaged various professionals and costed the project. The completed subdivision will include roads, footpaths, landscaping and utilities. You have asked whether this development, subdivision and sale of the lots will be taxable supplies. You, are an entity for the purposes of the GST Act and will be liable for GST on any taxable supplies you make. Section 9-5 of the (GST Act provides that you make a taxable supply if: a) you make the supply for consideration; and b) the supply is made in the course or furtherance of an enterprise that you carry on; and c) the supply is connected with the indirect tax zone; and d) you are registered, or required to be registered. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. For the supply of your sub-divided land to be a taxable supply, all of the requirements in section 9-5 must be satisfied. In your case you will be selling fully serviced vacant residential lots for consideration and the lots are connected with Australia as they are located in the indirect tax zone (Australia). Therefore, paragraphs 9-5(a) and 9-5(c) of the GST Act are satisfied. In addition the supply of the lots in your factual situation will neither be GST-free or input taxed. Accordingly, we must determine whether a) Your sales of the lots are in the course or furtherance of an enterprise that you are carrying on and b) If so whether you are required to be registered for GST. | Detailed Reasoning - Enterprise: The term ‘carrying on an enterprise’ is defined in the GST Act and includes doing anything in the course of the commencement or termination of the enterprise. Section 9-20 of the GST Act relevantly defines enterprise to include an activity, or series of activities, done: ● In the form of a business ● 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, license or other grant of interest in property The ATO view on the meaning of the term ‘enterprise’ is explained in detail 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’ (MT 2006/1). MT 2006/1 at paragraph 154 provides: 154. For an entity that has to carry on an enterprise to be entitled to an ABN, it is necessary to identify one activity or a series of activities that amount to an enterprise. If an entity carries on a number of activities, only one of those activities need constitute an enterprise in order for the entity to be entitled to an ABN. However, not every activity or series of activities that an entity carries on would by themselves amount to an enterprise or be activities carried on by them in an enterprise. Some activities will be specifically excluded while others may not fall within the definition of enterprise. You are currently not registered for GST. You are licensing your property to your Family trust for it to use in its primary production activities and leasing both commercial and residential properties. Based on the information provided in your ruling application, we have assumed that you are currently not required to register for GST due to not meeting the GST turnover threshold of $75,000. It is necessary to consider whether your subdivision activities are in the form of an adventure or concern in the nature of trade, carried out in a business-like and commercial manner. The issue is whether the property, used in your licensing activities, (excluding your home) has been changed to a revenue asset as a result of your decision to undertake development activities on your land. Paragraph 234 of MT 2006/1 provides that ordinarily the term business would encompass trade engaged in, on a regular or continuous basis. An isolated or one off transaction may fall into the category of ‘an adventure or concern in the nature of trade’ where the activities being undertaken do not amount to a business but are commercial in nature and have the characteristics of a business deal. Paragraph 237 of MT 2006/1 provides that the term 'profit making undertaking or scheme' like the term 'an adventure or concern in the nature of trade' concerns transactions of a commercial nature which are entered into for profit-making, but are not part of the activities of an on-going business. Both terms require the features of a “business deal.” Paragraph 260 of MT 2006/1 explains that assets can change their character from being capital/investment assets to being trading/revenue assets, or vice versa, but cannot have a dual character at the same time. There are number of cases and rulings that point to indicative factors that are relevant for consideration. ● Taxation Ruling TR 92/3 Income tax: whether profits on isolated transactions are income (TR 92/3) ● Statham & Anor v. Federal Commissioner of Taxation ; (89 ATC 4070); (20 ATR 228) (Statham) ● Casimaty v. FC of T ;; (1997) 151 ALR 242 (Casimaty) ● Federal Commissioner of Taxation v Whitfords Beach Pty Ltd (82 ATC 4031) (Whitfords Beach); 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. 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.” Gibbs CJ in Whitfords Beach says in his opening statement: A profit made on the sale of an asset may be treated as assessable income within the Income Tax Assessment Act 1936 (Cth.) as amended (``the Act'') for one of a number of reasons. In the first place, if the profit should be regarded as income in accordance with the ordinary usages and concepts of mankind, it will be assessable income within sec. 25(1) of the Act. When the owner of an investment chooses to realize it, and obtains a greater price for it than he paid to acquire it, the enhanced price will not be income within ordinary usages and concepts, unless, to use the words of the Lord Justice Clerk in Californian Copper Syndicate v. Harris (1904) 5 Tax Cas. 159, at p. 166, that have so frequently been quoted, ``what is done is not merely a realisation or change of investment, but an act done in what is truly the carrying on, or carrying out, of a business''. Paragraph 31 of GSTR 2001/7 provides commentary on what is meant by ‘capital assets’. It refers to those assets that make up the ‘profit yielding structure’, as opposed to trading assets (revenue assets) that are turned over and bought and sold in the course of trading operations. The following factors are considered important in determining whether your development activities conducted on your property, previously used in your licensing activities, are an adventure or concern in the nature of trade and therefore an enterprise for GST purposes. ● Has there been a change in use or purpose of the land. ● The level of pre-planning and development activity on the land including that activity necessary to meet Council requirements ● Are the activities systematic, organised and carried on in a business-like and commercial manner ● Size and scale, involvement, and risk and ● Relevant knowledge or skill | Detailed Reasoning - Has there been a change in use or purpose of the land: You acquired the single parcel of land (x acres) in 19XX which has been used as your residential home and for primary production activities that are undertaken through your Family Trust. It is acknowledged that at the time of acquiring your property, this asset is capital in nature. There is no evidence that steps have been taken by you to sell your property as single or that part of your land zoned ‘Township’ as a single lot or your land zoned ‘Low Density Residential’ which currently has your main residence on it. You have advised that when activities commence on your land, the Township Zone will no longer be licensed to the Family Trust. However the Family trust will continue its activities on the balance of the land excluding the residence. (a) Rezoning Your property was initially zoned ‘rural landscape interest’ and then the Council rezoned your property to ‘Rural Green Wedge’. A short time later, you participated in a rezoning application with your neighbour, although you did not initiate this process you participated through comments to your neighbour in regards to any impacts on your property. Your land, whilst remaining suitable for continuing primary production activities, is now capable of being applied for other uses, namely for sale as a single lot or to develop and subdivide your property into residential lots for sale. You took steps to obtain Council approval to develop and subdivide your property. (b) Council Planning Approval The effect of the rezoning and being granted Council subdivision approval (planning permit) is that your land, whilst remaining suitable for continuing primary production activities is now capable of being applied for other uses, namely; ● for sale as a single lot (Option 1), ● to sell the Township Zone as a single lot with Council approval for residential subdivision attached (Option 2) or, ● to exercise the planning permit and commit to the development, subdivision and sale of individual residential lots (Option 3). You have chosen Option 3 and this requires significant development activities to your land to change it from its current state as agricultural land to fully serviced residential lots. (c) Pre Sales Selling individual lots ‘off the plan’ forms part of your final strategy and you expect to receive a 10% deposit for each lot. This step is an important element in your funding structure. This step takes place prior to, to some degree, to commencing the actual physical development of your land. This action is an indicator that you will apply that part of your land for another purpose, causing the use or purpose of the land to change. It is our view there is a change in use and approach from the time when your land being used under licence to the Family Trust ceased, to the time when activities commenced on the land for the purpose of development, subdivision and sale. It is acknowledged that Councils do rezone land without application, and this did occur when your land was rezoned from ‘Rural Landscape Interest’ to ‘Green Wedge’. Your participation in the rezoning application from ‘Green Wedge’ to ‘Town Residential’ although it was limited, provided additional options for you to realise the value of your land. Rezoning of your land and obtaining a Council Permit to develop and subdivide your property, by itself without the other proposed factors present in your situation, might indicate the mere realisation of a capital asset. As per the facts and circumstances as presented, you have chosen Option 3 and have commenced extensive activities to implement the development, subdivision and sale. This process began when you engaged Town Planners and Surveyors. You have taken other steps such as financing and marketing to scope the viability of the venture, including budget estimates of revenues and expenses on a per lot basis. You have a council permit to develop, subdivide and ‘sell off the plan’. The extent of development required is extensive to turn your land from farm land into fully serviced residential lots. The length of time the property was owned is less significant when considering whether there is an enterprise as the purpose for which the land was held has changed when acquired and used from pre 19XX. Your situation is in contrast with Casimaty where the taxpayer continued their primary production activities while selling off pieces of the land to enable them to pay down their debts and continue with their primary production activities. The sales from the relevant subdivisions occurred as part of the mere realisation of a capital asset of the taxpayer. This was primarily influenced by the indisputable fact that the taxpayer acquired and continued to hold Action View for use as a residence and the conduct of a primary producer. Apart from the activities necessarily undertaken to obtain approval from time to time for subdivision of parts of the property, there was nothing to suggest a change in the purpose or object with which Acton View was held. In your case, the purpose for which you have applied the ‘Township Zone’ section of land is a discreet identifiable section of land that forms part of an overall coherent plan to profit in the nature of trade. Further, Gibbs CJ in Whitfords Beach provided the following commentary, ● On the day that the shares were transferred…. ‘the taxpayer was transformed from a company which held land for the domestic purposes of its shareholders to a company whose purpose was to engage in a commercial venture with a view to profit.’ (page 4039) ● The purpose of those controlling the taxpayer company was to engage in a business venture with a view to profit: ‘Counsel for the taxpayer submitted that it was not permissible to blur the distinction between the company and its shareholders. That of course is true, but in deciding whether what was done was an operation of business, it is relevant to consider the purpose with which the taxpayer acted, and, since the taxpayer is a company, the purposes of those who control it are its purposes.’ (page 4039) We consider there has been a change in purpose of your land, the (Township zone), and that this land has been applied for subdivision activities in a commercial and business-like manner. The character and nature of your property, that is subject to development, subdivision and sale has changed from capital in nature to revenue in nature. We also note that the approvals you have in place affect the whole of your property and if carried out may involve the further development of the balance of your land at some future date. | Detailed Reasoning - The level of pre-planning and development activity of the land including that to meet Council requirements: You have contended that you only did what was necessary to secure council approval. In the lead up to the subdivision process you have engaged various professionals on what was needed to proceed to effect a subdivision. They prepared and provided you with detailed reports including a: ● Stormwater Management Report ● Town Planning Report and ● Infrastructure Strategy Report. The information contained in these reports requires you to perform activities to be able to subdivide the property. These activities that form part of the planning phase are extensive. You then took the necessary steps to seek council approval to undertake the development. The proposed subdivision of serviced residential vacant lots is complex and extensive and goes beyond a simple basic vacant land subdivision. When development activities commence, the Township ‘TZ’ zoning area for the lots will cease to be used for primary production activities due to the nature of the works. The Planning Permit was issued on November 20XX and provides for extensive activities to be carried out including: ● An indicative shared path and Equestrian trail ● Landscaping and vegetation plan including a survey of all existing vegetation to be retained ● Completion of footpaths, lighting, roads and cul-de-sacs ● Details of the finishes to infrastructure such as footpaths and driveways and ● Drainage works, including storm water runoff in association with the creek that runs through your property so as to make the property suitable for residential lots. You plan to develop the property and will engage subcontractors as necessary. In addition to this, you will simultaneously arrange your funding and engage, as a strategy to maximise your returns, a real estate agent to manage the sales including ‘off the plan’ sales, and private sales to family members. The level of development activity you will be undertaking is similar to what would be undertaken by a property developer. The phrase used in the court cases of ‘undertaking only the development of the land required to secure council approval for the subdivision’ must be taken in the context of: ● The level of activity in the relevant development ● The commerciality of the project and ● Complexity of the work required to be completed for the subdivision to take place and not limited to the fact that you complied with what council required. The level of development in your case is to be contrasted with that undertaken in Statham and Casimaty where it was said: | Detailed Reasoning - Statham: The following matters are significant: (a) the owners were at first content to sell the land as one parcel, but were unable to do so; (b) no moneys were borrowed by them, although a guarantee was provided to the Kingaroy Shire Council by way of bank guarantee; (c) only very limited clearing and earthworks were involved; (d) the owners relied upon the Kingaroy Shire Council to itself carry out road works, kerbing, electricity and sewerage works which were required to be done | Detailed Reasoning - Casimaty: …The applicant deposes that the only works carried out to prepare the land for sale were the construction of an internal road, Opus Drive; the provision of water services, farm fencing all boundaries and the extension of the water main from Seven Mile Beach Road to the area of the subdivision. Ryan J continued in Casimaty that in his view, the approach which has been taken to the question of fact raised by cases of this kind has been illuminated by the following passage at 330 from the dissenting judgement of Dean J in Whitfords Beach 79 ATC 4648 (1970) 44 FLR 312 which was approved on appeal by the Full High Court (82 ATC 4031; 150 CLR 355) [ATC 4665-4666]. `The determination of the question whether the proceeds of sale of an asset should properly be seen as representing profits made in the ordinary course of what is in truth a business will not infrequently require precise definition both of the relevant business and of those activities which are comprehended within its ordinary course. The borderline case will commonly be a case which involves a mixture of facts and events both within and outside the ordinary course of the particular business. In such a case, the question whether any part of the proceeds of the particular sale should properly be seen as representing profits made within the ordinary course of the particular business will involve evaluation of competing factual considerations for which no rigid guidelines can be laid down. A receipt can constitute the proceeds of sale of an item sold in the course of a business of the vendor and yet be capital. A receipt can be the proceeds of sale of something acquired quite out of the ordinary course of a business and yet, in whole or in part, be income as representing gross profits made in the ordinary course of that business. Thus a goldsmith who sells in his shop his patrimony of a single gold bar does not necessarily receive the proceeds of sale as income merely because he takes advantage of his shop to sell his capital asset more advantageously. On the other hand, the master goldsmith who labours to turn such a gold bar into finely wrought brooches which he displays and sells with his other gold wares, could not be said to receive the whole of the proceeds of sale of those particular brooches as capital merely because the gold from which they had been fashioned had not been acquired by him for the purposes of his business but had been received as a gift from his father. The project builder who acquires a parcel of land as a capital asset and sells it unimproved will not necessarily receive the proceeds of sale as income merely because he uses the selling facilities of his business to sell that single parcel of land. On the other hand, if he subdivides the land into a dozen blocks upon each of which he erects a residence, the profit resulting from the proceeds of sale of the improved lots (after making allowance for the value of the land) will be profit made in the ordinary course of his business as a project builder notwithstanding that the land was acquired as a capital asset for some quite different purpose. Where a person who carries on a business sells an asset which had been held as a capital asset, one must, in each case, ask the question whether the asset was devoted to the particular business to such an extent that it can properly be said that the proceeds of sales represent profits made in the ordinary course of that business. In a case where the asset has been divided and the divided parts improved in the course of a business of dividing and improving such assets, it would be rare that one could say that the profits from sale of the individual improved items (after making allowance for the value of the original asset) represented part of the proceeds of mere realization of a capital asset as distinct from profits made in the ordinary course of that business. Where the activities of dividing and improving are of sufficient scale and scope, the fact that no prior independent business existed will not prevent those activities themselves constituting a business of which the profits arising on sale are the ordinary proceeds.'' In the developments in these cases there was no requirement for landscaping, lighting or provision of public space as is so in your case. Whilst in your circumstances, there are no buildings erected, the level of activity undertaken on the property is well planned and extensive at both the preparatory stage in order receive approval for subdivision and at the development works stage. In addition it is undertaken in a businesslike manner and the commerciality of the venture to bring your plan into effect to create XX individually serviced residential lots for sale is at a high level. | Detailed Reasoning - Are the activities systematic, organised and carried on in a business-like and commercial manner?: In your planning you have; ● Discussed with your child (who is also a solicitor) your options sometime after rezoning of your property, into Town Residential and Rural Low Density took place. These options are referred to earlier in the facts and circumstances, and in your deliberations, took into account your ‘ties’ with your land and proximity to family. Despite your low level of participation regarding the rezoning of your land to ‘Township’ and ‘Rural Low Density’, you considered that there were the three options available to you. You have commenced taking necessary steps to bring Option 3 into effect. ● Considered the impact of subdivision on the primary production capabilities of your land and the operations by your Family Trust. You are ‘slowing down’ on the primary production activities undertaken by the Trust and this is due to your health condition. The smaller scale primary production activities undertaken on the remaining part of your property will not be adversely impacted by the development activities and property subdivision. ● Engaged and paid for professional advice to help scope out your planned venture of subdivision in relation to Option 3. This includes a Town Planning Report, Stormwater Management Plan and Infrastructure Strategy Report. ● Engaged and paid for professional advice to commence your subdivision venture by obtaining approval to subdivide, including factoring in other considerations in connection with such an elaborate undertaking, such as: ● Utilised a pre-existing a line of credit and superannuation to support the finance of the venture, ● no longer using a portion of the land for primary production purposes ● considered viable options of selling, including ‘off the plan’, ● organised for marketing the residential lots, and ● being prepared to modify your plan to meet the needs of the market at the time of sale. ● Your financial projection show that the development costs will be around $X per lot. Your funding plan for the development consists of accessing your pre-existing line of credit. You have factored in your Superannuation funds to be injected into the project if required and it is acknowledged that will access the pre-sale deposit (if early release is granted) and then borrow additional funds to meet the shortfall. Your financial projections show total revenues for the development is high in relation to costs. Your plan for subdivision and sale is coherent and is undertaken in a business-like and commercial manner. Your activities are not simple or piecemeal. The activities are systematic as evidenced by the various reports and approvals you have sought and received. Your activities in relation to funding, including line of credit, pre-sales, and access to your Superannuation Fund and additional borrowings demonstrates a level of sophistication and complexity beyond that of a simple subdivision of vacant land. We consider that you meet this criterion. | Detailed Reasoning - Size and scale, Involvement and Risk: This development is not considered to be small or simple as noted in Casimaty. This development, initiated by you, has the character of a mid-sized development in that XX serviced residential lots are to be created as a consequence of the development works and subdivision as explained previous criteria. Your activities entail legal and financial control, including pre-sales that indicate a high level of sophistication and complexity. Your level of involvement can be compared in some aspects to Jenkinson J of the Federal Court in Stevenson v FC of T (91 ATC 4477) who quoted from the AAT decision. He says at paragraph 31: As to the taxpayer's personal involvement with the subdivision of the land, he was the sole decision-maker in respect of all matters of consequence in relation to it; he obtained professional advice but, except for the submission of the original planning application early in 1975, he chose for himself and directed the course of action to be followed. Thus at all times he fixed the price to be asked for the land. He sought and obtained finance and subsequently, having been refused further finance by that lender, he personally sought and obtained it from another source. He controlled the marketing of blocks after subdivision; he dealt personally with many prospective purchasers when they came to inspect the land.” Your role is not passive and there is high reward for risk taken. There has been no attempt or intention to sell the property as one large parcel of land. It is not uncommon for Councils to minimise their risk and any activities and costs associated with developments are borne by the land owner and not the Council. You are the legal owner and have 100% beneficial interest in this property. When undertaking this property venture, you have agreed to undertake certain things, including associated risks in pursuit of profit or gain whilst undertaking the venture. In your case, you are developing part of what was originally a parcel of land used for primary production purposes and developing this into fully serviced residential lots, including roads, lights and parklands covering X acres of the original land. The size and scale of this venture is not small or simple. It is sophisticated requiring a coherent plan. To achieve this plan, you are committing your land to the venture requiring significant financial exposure in order to fund the costs, and requiring a marketing strategy to sell the individual lots (both pre and post development). Your level of personal financial involvement in this venture, when weighing up all other factors is indicative of an enterprise activity, rather than a mere realisation of a capital asset. | Detailed Reasoning - Relevant knowledge or skill: You had some early experience in property development some years ago in that you undertook a development of X residential units and lease both residential and commercial properties. Where you do not have the necessary expertise or willingness to do any particular task you have engaged the relevant professionals to ensure your subdivision is undertaken in a businesslike manner. You may also involve your child to negotiate on your behalf. | Detailed Reasoning - Other Considerations: You have contended that you have not claimed or intend to claim any interest or other expenses that you incurred to date on this venture in your tax returns. It is our view, that expenses of the type mentioned above would be allowable deductions in respective income tax years of income, and creditable acquisitions (to the extent that they are creditable acquisitions) for GST purposes. You have also contended that the Project manager (if appointed) is expected to bear the risk regarding the delivery of the development on time and negotiating with all parties. This is a normal part of any contractual arrangement where each party will take necessary steps to mitigate those risks. You will ultimately bear the risk (legal and financial) in that it is your land that is committed and your funds that will be paid over for any work that the contractor does, subject to any default clauses included in an agreement. You contend that a reason for undertaking this development now is due to your age and ill health. Whilst we acknowledge that health can be a factor as in Casimaty we consider that what is being undertaken in this venture, weighing up all the factors, it is our view that on balance, your age and health is not a determinative factor in your circumstances. | Detailed Reasoning - Conclusion: We have reviewed your development in the light of the factors considered important by the Commissioner. Relevantly we have considered in detail the following factors set out above. ● Has there been a change in use or purpose of the land? ● The level of pre-planning and development activity on the land including that activity necessary to meet Council requirements ● Are the activities systematic, organised and carried on in a business-like and commercial manner? ● Size and scale, involvement, and risk and ● Relevant knowledge or skill Based on a consideration of all relevant factors we consider that your activities under Option 3 amount to more than ‘mere realisation’ of a capital asset, and constitute the carrying on of an enterprise of land development in the nature of trade. | Detailed Reasoning - Requirement to register for GST: Section 23-5 of the GST Act requires you to be registered for GST if: a) you are carrying on an enterprise and b) your GST turnover meets or exceeds the registration turnover threshold. (The current registration turnover threshold is $75,000.) As set out above we consider that: 1 you are carrying on a property development enterprise and 2 that the supplies in that enterprise will be the supplies of the Lots of land which resulted from converting your land, a capital asset, to a revenue asset used in your enterprise. Therefore the value of the supply of the lots will be included in your turnover threshold. As the sale value exceeds $75,000 you are required to be registered for GST. | Detailed Reasoning - Conclusion: As your sales of the lots are in the course of a property development enterprise and you are required to be registered for GST the supply of the lots will be taxable supplies pursuant to section 9-5 of the GST Act. Where you meet the requirements of Division 75 you will be entitled to calculate the GST on your taxable supplies under the margin scheme.

The advice in the Register has been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict ATO policy or decisions. | Goods and Services Tax Ruling GSTR 2001/7 Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover | Other references (non ATO view): Federal Commissioner of Taxation v. Myer Emporium Ltd (1987) 163 CLR 199; 87 ATC 4363; (1987) 18 ATR 693) ( Myer Emporium) | Casimaty v. Federal Commissioner of Taxation (1997) 97 ATC 5135, 37 ATR 358 | McCorkell v. Federal Commissioner of Taxation 98 ATC 2199; (1998) 39 ATR 1112 | Scottish Australian Mining Co Ltd v Federal Commissioner of Taxation (1950)81 CLR 188 | Whitfords Beach Pty Ltd v Federal Commissioner of Taxation (1983) 14 ATR 247 | Federal Commission of Taxation v. St Hubert's Island Pty Ltd (in liq) (1978) 138 CLR 210; 78 ATC 4104; (1978) 8 ATR 452