Private ruling: GST and enterprise
Published: September 2013

Ruling: Q1: Are you carrying on an enterprise of property development for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No. | Q2: Are you required to be registered for the goods and services tax (GST) for the purposes of the GST Act? | A2: No. | Q3: Do you need to pay GST on the sales proceeds? | A3: No.

Relevant facts and circumstances: In XXXX you purchased a XX acre lot. At this time you were both unsure whether to build your home on the block or just hold it for long term investment. In XXXX you decided to investigate with the local council the possibility of subdividing the property. The local council gave permission to subdivide in late XXXX. In late XXXX, you returned to dealing with the property. Part of the vacant block bordered the Council's sealed coastal road and this allowed you to subdivide XX blocks from the property with minimal council requirements of filling, driveway access and power. The lots were registered in XXXX and subsequently sold in XXXX and XXXX. The proceeds from both of these sales were dealt with under the capital gain tax provisions. The development of lots XX began in XXXX with available funds from the sale of lot XX. You engaged Council to do the road works, water and sewer. You engaged another entity to connect the power and a local quarry to do the filling of blocks to council requirements as Council did not do this work. All works required by Council were complete and you received the certificate of subdivision. At this point in time you did not register the subdivision with the land titles office. You decided that you would register the lots and make them available for sale as you would need to sell one for money in retirement. Your need for cash funds at this stage outweighs the prospects of increased multiple rates and land tax notices which may increase to the point that you cannot afford on an annual basis. In XXXX your real estate agent informed you of a buyer for lot XX but the subdivision registration was not yet completed. In XXXX you received registration of the subdivision of the individual lots from the land titles office. You are not in the business of developing land. You have no business plan and keep your own records. You have not subdivided land previously. You did not borrow any money to undertake the subdivision. You have engaged the services of a real estate agent to sell the blocks.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | Section 23-5 | Section 9-20

Reasons for decision: Summary: As the sale of lot XX in XXXX occurred prior to the introduction of the GST, it is out of scope of the GST Act and therefore will not be considered further. GST is payable on any taxable supply you make. Section 9-5 of the GST Act states: 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 Australia; 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. (*denotes a term defined in section 195-1 of the GST Act) If all the paragraphs of section 9-5 of the GST Act are satisfied, an entity will be making a taxable supply. Based on the facts of your case, the sale of lot XX in XXXX satisfies the requirements of paragraphs 9-5 (a) and (c) of the GST Act. Therefore, we must determine if the sale of lot XX satisfies paragraphs 9-5(b) & (d) of the GST Act. That is, whether you made the supply in the course or furtherance of an enterprise and whether you are required to be registered. | Detailed Reasoning - Enterprise: The term 'enterprise' is defined in section 9-20 of the GST Act. Note that 'enterprise' covers an extremely broad range of activities, more than the activities that would constitute the existence of a business, for instance. Subsection 9-20(1) of the GST Act states: (1) An enterprise is an activity, or 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; or… 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) provides guidance on the meaning of 'enterprise' for the purposes of entitlement to an Australian business number. Paragraph 1 of Goods and Services Tax Determination GSTD 2006/6 Goods and services tax: does MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999?, provides that the guidelines in MT 2006/1 are considered to apply equally to the term 'enterprise' as used in the GST Act and can be relied upon for GST purposes. Paragraph 159 of MT 2006/1 states that whether or not an activity constitutes an enterprise is a question of fact and degree depending on the circumstances of each individual case. Paragraph 180 of MT 2006/1 provides that the larger the scale of the activities the more likely it is that they constitute an enterprise. Paragraph 234 of MT 2006/1 states: 234. Ordinarily, the term 'business' would encompass trade engaged in, on a regular or continuous basis. However, an adventure or concern in the nature of trade may be an isolated or one-off transaction that does not amount to a business but which has the characteristics of a business deal. Paragraph 234 of MT 2006/1 distinguishes between activities done in the form of a business and those done in the form of an adventure or concern in the nature of trade. A business encompasses trade engaged in on a regular basis or continuous basis. An adventure or concern in the nature of trade includes an isolated or one-off transaction that does not amount to a business, but which has the characteristics of a business deal. In your case, the activity of subdivision of the property over time and sale of completed lots over time is considered to be an isolated transaction, ie, the subdivision of a single parcel of land into a number of lots, undertaken over a period of time, as required, depending on your financial situation. In order to determine whether you made a taxable supply, or will be making future taxable supplies, we must first ascertain if the sale occurred, or sales will occur, in the course of carrying on an enterprise. It is necessary to consider whether the activities are of an adventure or concern in the nature of trade (profit-making undertaking or scheme) or whether they are the mere realisation of a capital asset. Paragraph 265 of MT 2006/1 lists a number of factors which can be used to determine whether activities in relation to a sale of property are done under a profit-making undertaking or scheme. 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. These factors are as follows: · 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. 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. This may require consideration of the factors outlined above. However, there may also be other relevant factors that need to be weighed up as part of the process of reaching an overall conclusion. 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. In applying the above factors to your case we find that: · there has not been a change of purpose for which the land was held. You were unsure of a purpose when you originally bought the land, either to build a home or simply hold the land for long term investment · no additional land was acquired and added to the original parcel of land · the parcel of land was not brought into account as a business asset · there was, nor has been, a coherent plan · there was no business organisation (for example, a manager, office and letterhead) · no funds were borrowed to finance the project · the level of development of the land did not go beyond what is required for approval of the subdivision, namely: electricity; sewerage; land clearing; filling and road works · no buildings have been erected on the land · you have not subdivided or developed any other properties · you have had minimal involvement in the subdivision of the land over a long period of time. Having given consideration to the above factors, it is our view that the activities carried out in regard to the subdivision of the land and sale of lot XX, and future lots, is the mere realisation of a capital asset and not the carrying on of an enterprise. The requirements of paragraph 9-5(b) of the GST Act are not satisfied. As you do not satisfy all of the requirements of section 9-5 of the GST Act, you did not make a taxable supply when you sold, nor will you make a taxable supply when you sell, the subdivided lots. Therefore, GST is not payable on the sale of the subdivided lots. Under paragraph 9-5(d) of the GST Act, where you are not registered for GST we need to consider if you are required to be registered. Section 23-5 of the GST Act provides that you are required to be registered if: · You are carrying on an enterprise, and · Your GST turnover meets the registration turnover threshold. You are required to be registered where both the above requirements are met. In your case you do not satisfy the first requirement. It is therefore not necessary to consider the second requirement. Accordingly, you are not required to be registered. As you do not satisfy all of the requirements of section 9-5 of the GST Act, you did not, nor will you, make a taxable supply when you sold, or will sell, the subdivided lots. Therefore, GST is not payable on the sale of the lots.