Private ruling: GST and sale of subdivided land
Date of advice: 1 April 2016
Published: May 2016

Ruling: Q1: Is A, B and C & D making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax Act) 1999 (GST Act) when the specified property is subdivided and the lots sold? | A1: No, the sale of the subdivided lots will not be subject to GST. The requirements of a taxable supply under section 9-5 of the GST Act include that you are registered or required to be registered for GST. Under section 23-5 of the GST Act you are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold. We do not consider the activities in relation to the subdivision of the Property and sale of the lots amount to an enterprise in their own right. Further, A and B are not carrying on an enterprise and are neither registered nor required to be registered for GST C & D are a partnership carrying on a leasing enterprise. However, they are not required to be registered for GST as the sale of the subdivided lots constitutes the transfer of ownership of a capital asset and will be excluded from their projected GST turnover calculations pursuant to section 188-25 of the GST Act for GST registration purposes. Therefore, the sales of the subdivided lots will not be taxable supplies and are not subject to GST.

Relevant facts and circumstances: During the 19XXs, A and B as joint tenants purchased a rural property with two residential dwellings, sheds, stockyards and dams totalling approximately X ha (the Property) as additional farmland for growing livestock and also to supplement their income with rental income from the two dwellings on the Property. In the 19XXs, the child and child-in-law of A and B purchased a X% share of the property from A and B. The Property was held by A and B and the child and child-in-law as tenants in common (50/50). A and B and the child and child-in-law held their respective 50% interests as 'joint tenants'. A, and B, ceased carrying on their primary production business (livestock farming) on the Property. A, and B have not collected any rental income, or paid for any expenses in regard to the Property since 19XX. The main dwelling was renovated and was used by the child and child-in-law as their main residence. The second dwelling was rented and livestock farming was conducted on the land. All infrastructures was maintained or improved for the purpose of livestock farming. In 20XX, the child and child-in-law sold their X% interest in the Property to C and D as a going concern. C and D are the child and child-in-law of A and B. C and D's X% interest in the Property is identified as an asset of the partnership in the accounts of their 'business'. The main dwelling is used as C and D's primary residence. The second dwelling continued to be rented and the land used for livestock farming. The C and D Family Trust (beneficiaries are C and D) lease the property and receive management services from the partnership of C and D for the purpose of livestock growing. Amounts paid for rent and management services are at market rates. A, and B cancelled its GST registration in 20XX. A worked part-time for wages between 19XX and 20XX. A and B had a small business contract from 19XX to 20XX. It also managed two small livestock farms between 19XX and 20XX. A and B semi-retired in 20XX and fully retired in 20XX. It is proposed that the Property will be subdivided into four separate blocks. Two of the newly subdivided blocks (lot 1 & lot 4) will be sold as vacant land. The remaining subdivided block known as lot 2 will be sold with the pre-existing dwelling (that has been rented) on it. The dwelling on lot 3 will continue to be the main residence of C and D and includes approximately X hectares of adjacent land. Once the subdivision is completed C and D will purchase the other half share of lot 3 from A and B. C and D will finance their share of expenses related to the subdivision of the Property by taking out a loan whilst A and B will use their own savings. The interest expense on the loan taken out by C and D will be capitalised proportionally against the four blocks. Interest appropriated to the private residence will be of a private nature - in regard to the other three blocks, the interest will form part of the capital costs. A and B are retired and will have minimal involvement in the subdivision administration. However, having an interest in the outcome will be consulted on any key issues as they arise. There are no future plans for any subdivision developments. The subdivision of the Property has arisen as a result of the change in circumstances (over a long period of time) while holding the Property. C and D want title of the land containing their principal place of residence. A and B want to separate their affairs from C and D, and, provide funds to support their retirement. No manager, office, letterhead or any other business organisation has been established in order to effect the subdivision. C and D are effecting the subdivision in consultation/agreement with A and B. The Property is used for C and D's principal residence, the rental of a second dwelling and livestock farming. The Property will be used for this purpose until the sale of the subdivided lots subsequent to the approval of the rezoning application. Additional land has not been acquired by you during the rezoning process. The level of development of the land will not be beyond that necessary to secure council approval for the subdivision. No additional buildings have been erected on the property. A real estate agent will sell the three subdivided blocks that will be for sale and has provided sale estimates. A private ruling has been issued determining that the proceeds from the sale of the proposed subdivided lots will be subject to the capital gains tax provisions in Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 ( ITAA 1997).

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 Section 23-5 | A New Tax System (Goods and Services Tax) Act 1999 Subsection 184-1(1) | A New Tax System (Goods and Services Tax) Act 1999 Section 188-25 | Income Tax Assessment Act 1997 Subsection 995-1(1) | Income Tax Assessment Act 1997 Part 3-1, and | Income Tax Assessment Act 1997 Part 3-3.