Private ruling: GST and the sale of vacant land
Date of advice: 26 October 2016
Published: February 2017

Ruling: Q1: Is the sale of your vacant lots a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No, the sale of your vacant lots is not a taxable supply under section 9-5 of the GST Act as it was not made in the course of your enterprise for the following reasons: Paragraphs 262 to 269 of MT 2006/1 provide guidance in determining whether activities are of a revenue nature and considered to be activities of carrying on a business, or an adventure or concern in the nature of trade (profit-making undertaking or scheme) as opposed to the mere realisation of a capital asset. Specifically paragraph 265 lists the following factors which can be used to determine whether activities in relation to a sale of property are made under a profit-making undertaking or scheme: ● 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; and ● buildings have been erected on the land. If several of these factors are present it may be an indication that a business or an adventure or concern in the nature of trade is being carried on. On consideration of that facts that you provided we consider that you do not meet any of the above criteria and as such we do not consider that the sales of Lot W, Lot X, Lot Y and Lot Z were made under a profit making scheme and therefore was not made in the course of your enterprise.

Relevant facts and circumstances: You carry on a commercial property rental enterprise and have been registered for goods and services tax (GST) since July 20AA. You have not sold vacant lots for profit before the sale of Lot W, Lot X, Lot Y and Lot Z. Prior to July 20AA, you purchased vacant land at Lot W. You purchased Lot W to hold as an asset. Prior to July 20AA, you purchased vacant land at Lot X. You purchased Lot X to hold as an asset. Prior to July 20AA, you purchased vacant land at Lot Y. You purchased Lot Y to hold as an asset. Prior to July 20AA, you purchased vacant land at Lot Z. You purchased Lot Z to hold as an asset. GST was not included in the purchase price as these properties were acquired prior to the introduction of the GST Act so the acquisitions of these properties were outside the GST system. You were not issued with tax invoices and you did not claim any input tax credits for the purchase of Lot W, Lot X, Lot Y and Lot Z. There were no improvements made to the vacant land located at Lot W, Lot X, Lot Y and Lot Z. You did not re-zone the properties. Lot W is zoned as residential. Its highest and best use is considered to be its continued use as an acreage holding suitable for the construction of a residence. Lot X is zoned as rural. Its highest and best use is considered to be the current use as a rural holding suitable for the construction of a residence. Lot Y is zoned as rural. Its highest and best use is considered to be the current use as a rural holding suitable for the construction of a residence. Lot Z is zoned as rural. Its highest and best use is considered to be its continued use as an acreage holding suitable for the construction of a residence. When the properties were recently valued prior to the sales process, the valuer noted that the properties were not suitable for sub-division. You have not claimed any holding costs related to Lot W, Lot X, Lot Y or Lot Z. In August 20BB you sold Lot W. In September 20CC you sold Lot X. In December 20CC you sold Lot Y. You included GST in the sale of this property and applied the margin scheme. The purchaser was registered for GST. In November 20CC you sold Lot Z. You included GST in the sale of this property and applied the margin scheme. The purchaser was registered for GST.

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