Private ruling: GST and sale of vacant land together with assignment of development consent.
Published: May 2012

Ruling: Q1: 1. Is the sale of your interest in the vacant land together with assignment of development consent, subject to GST? 2. If so, are you required to be registered for GST? | A1: 1. No, the sale of your interest in the vacant land together with assignment of development consent, will not be subject to GST. 2. No, you will not be required to be registered for GST.

Relevant facts and circumstances: You are not registered for GST. You are the co-owner of land which was purchased many years ago. The other co-owner of the land is another person. You own the land as joint tenants. On acquisition the land had a residential house on it and your intention when acquiring the property was to use it for rental investment purposes. You rented the property until about a few years ago. A number of years ago, you and the other co-owner were approached by your neighbour, who owns the adjoining block of land, to enter into a joint venture to build a number of units spanning the two properties. The possible joint venture arrangement was to be that the parties would build the units together and each would receive entitlement to do what they wanted with their share of the units. You and the other co-owner intended to only sell sufficient units to cover your costs of construction and retain the balance for rental purposes. Although there had been continuing negotiations regarding a possible joint venture agreement between the parties, and discussions were held with your solicitors and tax adviser, no agreement was ever reached on a joint venture agreement and no formal joint venture agreement was ever made. You and the other co-owner's retirement strategy has been to acquire properties for rental purposes to provide an income stream. There is no history of any properties being sold by you and the other co-owner over the considerable number of years that you have held properties. You have no prior history of land development. You and the other co-owner are not licensed builders although the other co-owner is a handyman. Your neighbour is a X. Although there was no formal joint venture agreement in place, the parties proceeded to obtain a joint development consent about three years later on the two adjoining properties for construction of a number of units which was approved two years later and would lapse five years later. For the period between the development consent approval and the time that it would lapse you continued to rent your property. As a result of a request for further information, it was advised that the joint venture/project did not progress and was delayed due to your neighbour's inability to raise finance. Your neighbour was keen to implement a joint venture agreement but you and the other co-owner were not interested in losing full control of your land by committing it to a joint venture. As such, no agreement could be reached or formalised, this made it difficult for your neighbour to raise finance for his share of building costs. Around the time the development consent was to lapse, your tenant moved out of your property. The property needed considerable repairs to be undertaken to allow it to continue to be rented as it had been determined that there was a insect problem. In view of the original development consent in place and the need to satisfy the requirement that significant commencement had started on the development consent to keep it in force, you and the other co-owner, at Council's suggestion, demolished the house expecting the construction of the units to follow. The property was fenced with appropriate safety fencing and cleared ready for construction. The demolition was completed and the land site cleared months later. No other work was done on the property. Your neighbour's adjoining block was vacant land. The other co-owner carried out the demolition work on your property. Amendments were required to the original development consent as there was likely to be an issue with the water table if you excavated too far down which would likely lead to an increase in development costs. To avoid this increase in costs amendments to the original development consent were lodged that included reducing the number of units to be constructed and other amendments that would reduce the impact underground. The amendments were approved. You have provided a copy of the amended development consent. You and the other co-owner's estimated share of the costs incurred to date were about a certain amount which primarily involved architects and Council fees plus legal costs. You have not claimed any income tax deductions in respect of these costs incurred and have not claimed any input tax credits for any GST paid on these expenses. You and the other co-owner's estimated share of the costs of construction would be around a certain amount. You would have had to borrow to finance the construction costs. You would be able to obtain a loan as you held a number of other properties that could be used as security for the loan. A licensed builder would have been engaged to carry out the construction works. However no construction works were undertaken and no agreements were ever completed with any builders. After demolishing the house, your neighbour advised you that finance was difficult for him to obtain. When this became evident and as you were now incurring significant rates and land tax bills with no rental income coming in, a decision was made to no longer proceed to carry out the construction of the units. You and the other co-owner decided together with your neighbour to market the two properties for sale with development consent approval to a developer. Your property after demolishing the house is now vacant land which you will sell in its undeveloped state. Recently, you and the other co-owner exchanged a contract for the sale of your vacant land for a certain amount. You have included a copy of this contract. The contract for the sale of your land provides that the contract is subject to and conditional upon the purchaser completing a contract for the purchase of the adjoining property simultaneously with the purchase of your land. The contract for the sale of your land provides that by completion of the conditional contract for the sale of your land, you and the other co-owner will assign all your right, title and interest in the development consent approvals attached to the two adjoining properties.

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

Reasons for decision: Detailed Reasoning - Taxable supply: GST is payable on taxable supplies. The sale of vacant land together with assignment of development consent is a supply and will be subject to GST if it is a taxable supply. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states: You make a taxable supply if: · you make the supply for consideration; and · the supply is made in the course or furtherance of an enterprise that you carry on; and · the supply is connected with Australia; and · 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. All the elements of section 9-5 of the GST Act must be satisfied for a supply to be a taxable supply. In this case, the sale of your interest in the vacant land will be for consideration and your supply will be connected with Australia as the vacant land is in Australia. As such, the requirements in paragraphs 9-5(a) and 9-5(c) of the GST Act will be satisfied. Furthermore, in your case there are no provisions in the GST Act which would make the sale of your interest in the vacant land GST-free or input taxed. The issues that remain to be considered are whether the sale of your interest in the vacant land will be in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b) of the GST Act) and if so, whether you are required to be registered for GST (paragraph 9-5(d) of the GST Act). Whether the sale of your interest in the vacant land is made in the course or furtherance of an enterprise that you carried on Section 9-20 of the GST Act defines 'enterprise' to include, amongst other things, an activity, or series of activities, done in the form of a business or in the form of an adventure or concern in the nature of trade. Miscellaneous Taxation Ruling MT 2006/1 (available on our website at www.ato.gov.au) provides guidance on the meaning of 'enterprise' for the purposes of entitlement to an Australian business number. Goods and Services Tax Determination GSTD 2006/6 (also accessible from our website) 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. While an activity such as the selling of an asset may not of itself amount to an enterprise, account should be taken of the other activities leading up to the sale to determine if an enterprise is carried on. 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. The issue to be decided is whether the activities are an enterprise in that they are of a revenue nature as they are considered to be activities of carrying on a business or an adventure or concern in the nature of trade as opposed to the mere realisation of a capital asset. Assets can be categorised as trading/revenue assets or capital/investment 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 not to be purchased for trading purposes. Examples of capital/investment assets are rental properties, business plant and machinery, the family home, family cars and other private assets. The mere disposal of capital/investment assets does not amount to trade. Paragraph 260 of MT 2006/1 explains that assets can change their character from being capital/investment assets to being trading/revenue assets, or vice versa, but cannot have a dual character at the same time. The character of an asset must be determined at the time of expected supply. 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 also considers 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 but which has the characteristics of a business deal. Based on the information provided, the sale of your interest in the vacant land 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 sale of your interest in the vacant land 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. Paragraph 265 of MT 2006/1 provides that from the cases of Statham & Anor v. Federal Commissioner of Taxation 89 ATC 4070 and Casimaty v FC of T 97 ATC 5135 a list of factors can be ascertained that provide assistance in determining whether activities are a business or an adventure or concern in the nature of trade. 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 a 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 your particular circumstances, whilst there was a change of purpose for which your property was held, no other factors above are present. In your case you acquired the property as a joint tenant with the other co-owner many years ago for the purposes of rental investment. You have held this property for a number of years and have rented it up until about a few years ago when your tenant moved out. Although you have held this property for a long period and have put it to an income producing use for rental purposes the purpose for which you held this property changed as you later decided to use it for the purpose of constructing a number of units with your neighbour. A number of years ago, your neighbour on the adjoining block of land approached you to enter into a joint venture to build a number of units spanning the two properties. Discussions and continued negotiations were held with your neighbour and you also held discussions with your solicitor and tax advisor but no agreement was ever reached or formalised. Despite this, a joint application for development consent was made spanning the two properties about three years later and this was granted two years later and would lapse five years later. In all this time your property was still being rented and as such remained a capital/investment asset. For the period the development consent was approved and the time that it would lapse the joint venture/project did not progress and was delayed due to your neighbour's inability to raise finance. Your neighbour was keen to implement a joint venture agreement but you and the other co-owner were not interested in losing full control of your land by committing it to a joint venture. As such, no agreement could be reached or formalised, this made it difficult for your neighbour to raise finance for his share of building costs. Around the time the development consent was to lapse, your tenant moved out of your property. At this time, the property needed considerable repairs to be undertaken to allow it to continue to be rented and in view of the original development consent in place and the need to satisfy the requirement that significant commencement had started on the development consent to keep it in force, you and the other co-owner, at Council's suggestion, demolished the house expecting the construction of the units to follow. The property was fenced with appropriate safety fencing and cleared ready for construction. The demolition was completed and the land site cleared around seven months later. No other work was done on the property. Amendments were required to the original development consent as there was likely to be an issue with the water table if you excavated too far down which would likely lead to an increase in development costs. To avoid this increase in costs amendments to the original development consent were lodged that included reducing the number of units to be constructed and other amendments that would reduce the impact underground. The amendments were approved. After demolishing the house, your neighbour advised you that finance was difficult for him to obtain. When this became evident and as you were now incurring significant rates and land tax bills with no rental income coming in, a decision was made to no longer proceed to carry out the construction of the units. You and the other co-owner decided together with your neighbour to market the two properties for sale with development consent approval to a developer. Your property after demolishing the house is now vacant land which you will sell in its undeveloped state. Based on the particular circumstances of this case it is considered that a one-off or isolated property development enterprise activity that would be the subject of the joint venture resulting in a share of the units constructed has never eventuated. In addition, you advised that you and the other co-owner were not interested in losing full control of your land by committing it to a joint venture. As such, no agreement could be reached or formalised, this made it difficult for your neighbour to raise finance for his share of building costs. The activities to obtain joint application for development consent on their own without any further activities are not considered to be an enterprise in their own right. You and the other co-owner's estimated share of the costs incurred to date were about a certain amount which primarily involved architects and Council fees plus legal costs. You have not claimed any income tax deductions in respect of these costs incurred and have not claimed any input tax credits for any GST paid on these expenses. Furthermore, you advised that a licensed builder would have been engaged to carry out the construction works. However no construction works were undertaken and no agreements were ever completed with any builders. The nature of the property you are now selling is not the newly constructed units but vacant land in an undeveloped state together with development consent. A development consent that is attached to the land and which runs with the land is not considered a separate supply of the development consent in its own right when a property is sold. Development consents issued by local authorities in effect run with the land. The sale of the property with the attached development consent would, in the circumstances of this case, be a single supply. The sale of your interest in the vacant land together with assignment of development consent without anything more is not part of a trade of buying, selling and developing land as you are not in the business of acquiring, developing and selling land. Furthermore, based on your particular circumstance and taking into account the activities leading up to the sale we consider that the sale of the vacant land together with assignment of development consent is a mere realisation of a capital/investment asset which does not amount to the carrying of an enterprise as defined under section 9-20 of the GST Act. As you are not carrying on an enterprise in relation to the sale of the vacant land and the sale of the vacant land is not in the course or furtherance of an enterprise that you carry on, the requirement in paragraph 9-5(b) of the GST Act is not satisfied. | Detailed Reasoning - GST Registration: You are not currently registered for GST. 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 (currently $75,000). As discussed above, the sale of your interest in the vacant land is a mere realisation of a capital/investment asset which does not amount to the carrying of an enterprise As such you are not required to be registered for GST in respect of the sale of your interest in the vacant land. The requirement in paragraph 9-5(d) of the GST Act is not satisfied. | Detailed Reasoning - Conclusion: This means that not all of the requirements of section 9-5 of the GST Act will be satisfied. Accordingly, the sale of your interest in the vacant land together with assignment of development consent will not be a taxable supply and will not be subject to GST.

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