Private ruling: GST and the subdivision of farm land
Date of advice: 13 April 2016
Published: June 2016

Ruling: Q1: ls the sale of your subdivided lot a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes.

Relevant facts and circumstances: You are a partnership registered for GST. You are carrying on an enterprise of farming. In DDMMYYYY you purchased X hectares (the Land). The property is a rural residential lot and you acquired it as GST-free farmland to use in your farming enterprise. You also decided to build a residence on the property. In MMYYYY you lodged development applications with the Local Authority to subdivide the Land into four X hectare lots. Development approval was granted four lots (Lot 1, Lot 2, Lot 3 and Lot 4). Your intention for subdividing is to finance the construction of your house. You intend to retain two lots, construct your house, and continue operating your farming enterprise. In MMYYYY the subdivision was complete and two lots were placed on the market for sale. In MMYYYY you entered into a Sales Contract to sell Lot 1 for $X. The purchaser will not be using the land for farming.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5.

Reasons for decision: Summary: Under section 9-5 of the GST Act, you make a taxable supply if: • you make the supply for consideration • the supply is made in the course or furtherance of an enterprise that you carry on • the supply is connected with the indirect tax zone (Australia), and • you are 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. The sale of your subdivided lot of land is for consideration, is connected with Australia, and you are registered for GST. As such the first, third and fourth requirements of section 9-5 of the GST Act are met. The second requirement in section 9-5 of the GST Act is that your supply is made in the course or furtherance of your enterprise. The phrase, 'in the course or furtherance of' is not defined in the GST Act. Accordingly, it is appropriate to examine the ordinary meaning of those words. The Australian Concise Oxford Dictionary (1997) defines the phrase 'in the course of' as 'during'. The word 'furtherance' is defined to mean 'furthering or being furthered; the advancement of a scheme etc'. The Explanatory Memorandum relating to the A New Tax System (Goods and Services Tax) Bill 1998 confirms this ordinary meaning at paragraph 3.10 which states: 'In the course or furtherance' is not defined, but is broad enough to cover any supplies made in connection with your enterprise. An act done for the purpose or object of furthering an enterprise, or achieving its goals, is a furtherance of an enterprise although it may not always be in the course of that enterprise. You are selling land used in your farming enterprise. This is a sale that is connected with your farming enterprise. Therefore, the sale is made in the course or furtherance of your farming enterprise. As such the second requirement of section 9-5 of the GST Act is satisfied. Therefore, the sale of the land satisfies the positive requirements of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, you are making a taxable supply under section 9-5 of the GST Act when you sell your lot of land.