Private ruling: GST, taxable supplies and sale of subdivided property
Published: November 2011

Ruling: Q1: Is the sale of the subdivided lots a taxable supply? | A1: No, the sale of the subdivided lots will not constitute a taxable supply.

Relevant facts and circumstances: You purchased property located at a specified location approximately XX years ago The property is approximately X000m 2 The property was used as your main residence from the time of purchase until 2008 Subsequent to your children leaving home you made the decision to vacate the premises to reside in a smaller home From 2008 to present, the property has been rented to tenants You have never conducted business activity on the property You intend to submit a development approval application to the relevant local shire council seeking permission to subdivide the property into eight lots and sell the lots as vacant land You have never before subdivided any property You will not build anything on the land or perform any works beyond the minimum requirements necessary to satisfy the development application You do not have a formal business plan You intend to engage consultants and contractors to perform the work necessary to satisfy the development application conditions You intend to maintain a passive role in the subdivision activities You engaged surveyors to survey the land and prepare a draft of the proposed subdivision You intend to demolish the existing house and carport as you anticipate that this will be a requirement of the development approval application You are not registered for GST

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 9-5 | GST Act section 9-40 | GST Act section 9-20 | GST Act section 23-5 | GST Act section 188-15 | GST Act section 188-20 | GST Act section 188-25.

Reasons for decision: Summary: Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that GST is payable on taxable supplies made by an entity. The term 'taxable supply' is defined in section 9-5 of the GST Act and includes the requirement that the supply is made in the course of carrying on an enterprise and you are either registered or required to be registered for GST. 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 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. | Detailed Reasoning - Carrying on an enterprise: What constitutes an enterprise for GST purposes is defined in section 9-20 of the GST Act and includes an activity, or series of activities done: o in the form of a business; or o in the form of an adventure or concern in the nature of trade; or o on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property. In accordance with paragraph 159 of MT 2006/1, whether or not an activity, or series of activities, constitutes an enterprise is a question of fact and degree having regard to all of the circumstances of the case. Paragraph 234 of MT 2006/1 distinguishes between a business and an adventure or concern in the nature of trade. It provides that the term business would encompass trade engaged in, or on a regular or continuous basis. However, it goes on to say that an adventure or concern in the nature of trade may be an isolated or one-off transaction that does not amount to a business. Based on the information provided, your subdivision activity will be a one-off activity, and is not an activity or series of activities done in the form of a business, or part of a series of property development and/or property trading activities. Therefore, we shall consider whether your subdivision activity is an activity done in the form of an adventure or concern in the nature of trade. Paragraph 244 of MT 2006/1 provides further guidance on adventures and concerns in the nature of trade. It states: 244. An adventure or concern in the nature of trade includes a commercial activity that does not amount to a business but which has the characteristics of a business deal. Such transactions are of a revenue nature. However, the sale of the family home, car and other private assets are not, in the absence of other factors, adventures or concerns in the nature of trade. The fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature. There are several other points raised by MT 2006/1 which are of relevance to your circumstances: Assets can be categorised as either trading assets or investment/capital assets. Assets purchased with the intention of holding them for a reasonable period of time, to be held as income producing assets or to be held for the pleasure or enjoyment of the person, are more likely to be purchased for investment purposes and not trading purposes (paragraph 258). Examples of investment/capital assets are rental properties, business plant and machinery, the family home, family cars and other private assets. The mere realisation of investment/capital assets does not amount to trade (paragraph 259). The mere realisation of a capital/investment asset is not considered to be activities of carrying on a business or an adventure or concern in the nature of trade (paragraph 263). We now need to determine whether your subdivision and the sales of the eight lots of subdivided land are activities with a commercial flavour that go beyond the mere realisation of an investment/capital asset. The original purpose for the purchase of the property was for use as your principal place of residence. Subsequent to your children leaving home, you made the decision to vacate the premises and reside in a smaller home. The property has been leased to tenants since 2008. You have never been involved in any prior subdivisions of land and intend to maintain a passive role in the subdivision. You will appoint consultants and contractors to perform the work necessary to satisfy the development approval application and advise that you will not build anything on the land or perform any works beyond the minimum requirements necessary to satisfy the development application. You also advised that you intend to demolish the existing house and carport as you anticipate that this will be a requirement of the development approval application. On balance we consider that the subdivision of your property does not have the characteristics of an adventure or concern in the nature of trade but rather it will be the mere realisation of an investment/capital asset. Hence, the supply of the vacant subdivided land will not be made in the course or furtherance of an enterprise. It should be noted that it is considered you are carrying on an enterprise of leasing as a result of your activities of leasing the property to your tenants. The supply of residential premises by way of lease, hire or licence is classified as an input taxed supply for GST purposes. | Detailed Reasoning - GST registration: As stated above, you are not registered for GST. As such, we need to consider whether you are required to be registered for GST. You are required to be registered for GST if your annual GST turnover is $75,000 or more (unless you are a non-profit body). However, when calculating your GST turnover supplies that you make that are input taxed are disregarded. In addition, any supplies made by way of a transfer of ownership of a capital asset as a consequence of ceasing to carry on an enterprise are also disregarded. Consequently, your GST turnover does not meet the threshold of $75,000 and as such you are not required to be registered. | Detailed Reasoning - Conclusion: We consider that your activities relating to the subdivision of the property do not amount to you carrying on an enterprise for GST purposes and that you are neither registered nor required to be registered for GST. As such, the sale of the property will not be a taxable supply.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.