Private ruling: Subdivision of residential land
Date of advice: 13 March 2019
Published: May 2019
Ruling period: 1 July 20XX to 30 June 20XX | 1 July 20XX to 30 June 20XX | 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 2018

Ruling: Q1: Are you entitled to an Australian Business Number (ABN) in respect of the subdivision of land? | A1: No | Q2: Are you required to register for GST pursuant to section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and remit GST on the sale of any subdivided lots? | A2: No | Q3: Are the sales of the subdivided lots considered to be a mere realization of your capital assets? | A3: Yes

Relevant facts and circumstances: You are a manager at your place of employment and are not registered for GST. You have not previously been involved in purchasing and developing property. After 20 September 1985 your relative purchased an acreage upon which they built a family home. You decided to purchase the property from your relative at the market value at the time and borrowed money to do so. The family found it was difficult to service the loan and were looking at ways to free up some much needed capital so that they could keep the family home. Over the past X years your council has approved developments in your street and you are considering subdividing the X acres into X X acre blocks – one of which would be retained as the family home. You decided to seek approval to subdivide the acreage to free up some capital to extinguish the debt when the blocks were sold. Council has now approved the subdivision subject to you completing basic engineering works. Once the subdivision is registered, it is your intention to sell the individual lots as vacant land. You do not have a business plan. You only have a basic budget estimate for the subdivision expenses and income. The council fees to date have been paid out of family savings.

Relevant legislative provisions: A New Tax System (Australian Business Number) Act 1999 subsection 8(1) | A New Tax System (Goods and Services Tax) Act 1999 subsection 9-20 | A New Tax System (Goods and Services Tax) Act 1999 section 23-5

Reasons for decision: Summary: Subsection 8(1) of the A New Tax System (Australian Business Number) Act 1999 (ABN Act) states that: You are entitled to have an Australian Business Number (ABN) if: a) you are carrying on an enterprise in Australia; or b) in the course or furtherance of carrying on an enterprise, you make supplies that are connected with the indirect tax zone. Section 9-20 of the GST Act defines ‘enterprise’ to include: ‘an activity, or a series of activities, done: (a) in the form of a business; or (b) in the form of an adventure or concern in the nature of trade’. Miscellaneous Taxation Ruling MT 2006/1 provides the Tax Office view on the meaning of ‘enterprise’ for the purposes of entitlement to an ABN. Goods and Services Tax Determination GSTD 2006/6 provides that the discussion in MT 2006/1 equally applies to the term ‘enterprise’ as used in the GST Act and can be relied on for GST purposes. | Detailed Reasoning - In the form of a business: Paragraph 178 of MT 2006/1 outlines the main indicators of carrying on a business and paragraph 234 specifies that ‘ordinarily’ the term ‘business’ would encompass trade engaged in, on a regular or continuous basis’. As the subdivision of land is a one off-project and you have never previously been involved with purchasing and development of real property, you do not display the salient indicator of a business. Given these reasons, we do not consider your activities in regard to the subdivision of land to have been done in the form of a business. | Detailed Reasoning - In the form of an adventure or concern in the nature of trade: An isolated or one off transaction may fall into 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 262 to 265 of MT 2006/1 discusses judicial decisions that have established a number of factors in determining whether activities are an adventure or concern in nature of trade and whether the activities relating to isolated transactions are an enterprise or are the mere realisation of a capital asset. In determining whether activities relating to isolated transactions are enterprise or are the mere realisation of capital asset, it is necessary to examine the facts and circumstances of each particular case. In your case, you acquired the property from a relative to prevent the bank from foreclosing on its mortgage over the family home. Your purchase was not a speculative investment for possible future subdivision and sale. You stated that you have not previously engaged in any similar activities and the purpose of the subdivision and sale was to free some capital so you could extinguish the debt that now stands in your name. You have not acquired additional land nor is there an intention to change the purpose of the land. The family home remains on part of the land. A minimal amount of work was undertaken in order to prepare the land for council approval of the subdivision. Given the above, we do not consider your activities in regard to the subdivision of land, as being done in the form of an adventure or concern in the nature of trade. You are merely realising a capital asset. As you are not carrying on an enterprise, you are not entitled to an ABN in respect of the subdivision of land. | Detailed Reasoning - Question 2: Section 23-5 of the GST Act provides that you are required to be registered for GST ‘if: (a) you are carrying on an enterprise; and (b) your GST turnover meets the registration turnover threshold’. As you are not carrying on an enterprise in regard to the subdivision of land, you are not required to be registered for GST and consequently not required to charge GST. | Detailed Reasoning - Question 3: As discussed in question 1, the sale of the subdivided lots are considered to be a mere realisation of your capital assets.