Private ruling: GST - property development
Date of advice: 15 June 2023
Published: 7 August 2023
Ruling period: 1 July 2019 to 20 June 2028
Date scheme commenced: 1 July 2019

Ruling: Q1: Will any part of the proceeds from the sale of the subdivided lots (the Lots) from the Property be assessable to you under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. | Q2: Will the proceeds from the sale of the Lots at the Property be assessable as a capital gain (section 10-5 and 102-5 of the ITAA 1997) to the extent that it is not assessed as ordinary income under section 6-5 of the ITAA 1997? | A2: Yes, however section 118-20 of the ITAA 1997 reduces the capital gain by the profit already reported as assessable income (as per question 1) under section 6-5 of the ITAA 1997. | Q3: Are you required to be registered for GST? | A3: Yes.

Relevant facts and circumstances: You acquired the Property of more than 20 hectares with your spouse more than 20 years ago for private purposes. You subsequently constructed a house which was completed approximately 6 months after the land was acquired You have lived at the Property continuously since this time and continue to reside there. You have never used the Property for commercial purposes. The Property has been used exclusively for your private and personal use from the purchase date until the principal contractor took possession of the stage one construction site. Approximately 15 years ago the health or your spouse began to deteriorate. You became their sole carer and started to consider the option to sell the Property and acquire something more manageable given your age. You entered into an option agreement under which a Company X to acquire a large proportion of the Property to for the purpose of constructing a retirement village. The option subsequently expired without being exercised due to the economic conditions prevalent at the time. Your spouse was moved to a residential aged care facility after several years of home care. Approximately 10 years ago the local council introduced changes to zoning in the area. The Property and the geographical area around it including approximately other properties that were previously designated as rural lifestyle blocks were changed to a general residential zoning. You did not make submissions in respect of the change in the zoning Due to your age and with your spouse in full time care you decided that it was in your best interest to sell the Property and simplify your affairs. Although you did not list the Property for sale at any point, you received a number of unsolicited offers related to the Property. These included sales with delayed settlement arrangements. Others involved the development of the Property whereby you would receive either proceeds from the sale of subdivided lots, or a share of development profits. None of the offers were for the sale of the Property as a whole. You subsequently entered into a development agreement with Company Y (the Developer) to develop the Property (the Development) into subdivided lots (Lots). Company Y is a related entity to Company X with who had previously entered the option agreement involving the large portion of the Property. You also stated that the following were factors in your decision to enter the Development Agreement: • Company X have been key stakeholders in other property development in your region that you had observed and were seen as having a good track record, good relationship with council and strong financial backing. • The principals of Company X have a background in both finance and civil engineering in addition to property development, and this was seen as a desirable skill mix to have. • The age of Company X stakeholders ensured that they could see the project to completion. • The openness of Company X to liaise with your power of attorney (POA). You recognise that the project may need to be completed by your POA. • The overall funds likely to be realised from the agreement. • The availability of cashflow to meet your immediate living and lifestyle costs while you are healthy enough to make the personal use of the funds. The Development Agreement was structured in a way that provided for two payments to be made to you from the sale of the subdivided lots: • An amount for each approved, developed and settled lot (the Initial Payment). • A second payment of an amount equal to 50% of the profit realised from the development net of finance and project costs (the Deferred Payment) The remaining 50% of the profit was to be retained by the Developer. The Development Agreement also allowed for an advanced payment amount (the Advanced Payment) to be paid to you at the time of entering the Development Agreement. The Advanced Payment was classified as an interest-free loan and is to be repaid by you from the Initial Payment from a number of the first lots sold and settled. The scope of responsibilities of the Developer under the Development Agreement included: • Monitor the progress of the Development in accordance with agreed timetables and budgets and report to a project control group which included you or your representatives. • Establish a bank account (the Project Account) for use in accordance with the Development Agreement, with the Developer being the sole signatory of the account. • Arrange for the Project Accounts to be audited annually and be available for review quarterly. • Pay all expenses relating to the Development Approval, although these expenses then form part of the project costs, therefore you ultimately share this cost with the Developer. • Procure finance for the development (the Finance Facility). • Deposit all funds from the Finance Facility into the Project Account or use them to directly pay contracts in accordance with agreements approved by the Developer. • Engage a quantity surveyor to prepare an initial report the budgeted costs of the Development and to report on and certify project costs being drawn down from the Finance Facility prior to those funds being drawn. • Pay all other project costs (apart from those relating to the Development Approval stage) out of the Project Account or from the Finance Facility. • Payments from the Project Account or Finance Facility can only be made by the Developer if either they have been certified by the quantity surveyor or authorised by you. • Market and manage all property sales. • Determine the timing for each stage release of subdivided lots. • Issue a schedule of indicative sale prices for all Lots forming part of a stage release to the you for approval, with a valuer to determine price where the parties do not agree. • Pay sale proceeds out of the Project Account net of financed amounts and certified project costs in equal parts the Developer and you. Your obligations and entitlements under the Development Agreement clauses include the following: • Remain as legal owner of the Property. • Agree to be a party to all sale contracts for the lots assuming direct responsibility to purchasers under them. • Provide the Property as security for the Finance Facility. • Pay GST to the ATO within 3 days if required to be registered and if received under the sale contracts. • Pay net sale proceeds from the sale of the Lots (less your Initial Payment) into the Project Account) upon settlement. The Developer obtained Development Approval and the Development subsequently commenced. The development is being completed in a staged manner over a number of stages and expected to take a number of years to complete. Initial rapid sales meant that the Developer was able to increase the number of lots in stage one. As the number of lots being constructed in stage one increased, the construction costs increased accordingly, and the Finance Facility amount agreed in the Development Agreement needed to be increased. You agreed to the both the increase in lots in stage one and a doubling of the Finance Facility amount. You provided a limited recourse guarantee limited to the Property to secure the Finance Facility. Project control group meetings were held on an irregular basis until the Development Approval was achieved. Bi-monthly meetings have since been held. You and your POA have attended the meetings. Your spouse died several years ago. You acquired your spouse's interest in the Property as surviving joint tenant and now solely own the Property. You have no previous experience in property developments. You do not operate a business or receive any other income that would be a taxable supply. You are not registered for GST. You have provided the historical unimproved capital valuations completed for the purposes of rate determination. These showed a significant increase after the rezoning of the land. You entered into the development agreement in the months prior to the increase occurring.

Relevant legislative provisions: Income Tax Assessment Act 1997 Part 3-1 and Part 3-1 | Income Tax Assessment Act 1997 section 6-5 | A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 9-20 | A New Tax System (Goods and Services Tax) Act 1999 section 11-20 | A New Tax System (Goods and Services Tax) Act 1999 section 23-5 | A New Tax System (Goods and Services Tax) Act 1999 section 75-5

Reasons for decision: Summary: The appropriate entity We accept that you have not entered a partnership with the Developer for the following reasons: • You did not have access to the Project Account. • The Development Agreement does not contemplate dealing with losses. • The Development Agreement establishes the Project Control Group of which you are a member, it meets quarterly but these are merely advisory as to progress of the project. • Further the Development Agreement provides you remain the legal owner of the Property, and you also agree to be a party to all the sale contracts assuming direct responsibility to purchasers under them. • You are required you to account to the ATO for any sales that you make. These are all positive obligations that point away from a partnership being the relevant taxpayer for income tax purposes and supplier for GST purposes. Consequently, the following analyses your activities as an individual in relation to the sale of the Lots and determines your income tax consequences and considers the income tax consequences as an individual and also whether you are required to be registered for GST. | Detailed Reasoning - Question 1 and 2: Proceeds from the sale of subdivided land will be taxed for income tax purposes as ordinary income under section 6-5 of the ITAA 1997, where the land is held as trading stock and sold as part of carrying on a business of property development. Alternatively, profits/gains from the subdivision of land can be assessable under section 6-5 of the ITAA 1997 as an isolated commercial transaction with a view to a profit, or as statutory income under the capital gains tax (CGT) provisions contained in Part 3-1 and Part 3-1 of the ITAA 1997 as a mere realisation of a capital asset. | Detailed Reasoning - Change of intention: While holding an asset for a long period of time may seem to indicate that it is a long-term capital asset, the intention of the taxpayer at the time of acquiring the asset and throughout the ownership period that the taxpayer owns that asset is an important factor to consider. In circumstances where there has been a change of intention in respect of a property from holding the asset as a long-term capital asset, to one of selling the asset for a profit, the question which arises is whether the sale remains as a 'mere realisation' of capital asset. The ATO view of whether property development activities constitute the carrying of a business or an isolated transaction that is of a revenue nature or is a mere realisation of a capital asset is based on principles, factors and indicators that have been established by the Courts. | Detailed Reasoning - Carrying on a business: 'Business' is defined by subsection 995-1(1) of the ITAA 1997 and includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee. Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? (TR 97/11) at paragraph 13, provides the general indicators of a 'business' established by the courts. The indicators are: • whether the taxpayer has more than just an intention to engage in business • whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity • whether there is regularity and repetition of the activity • whether the activity is of the same kind and carried on in a similar manner to that of ordinary trade in that line of business • whether the activity is planned, organised and carried on in a businesslike manner such that it is described as making a profit • the size, scale and permanency of the activity, and • whether the activity is better described as a hobby, a form of recreation or sporting activity. While no single indicator is decisive. Whether a business is being carried on depends on the 'large or general impression gained' ( Martin v. FC of T (1953) 90 CLR 470 at 474; 5 AITR 548 at 551). | Detailed Reasoning - Application to your circumstances: On balance we do not consider you to be carrying on the business of property development, subdivision and sale. This is based on a review of the relevant indicia as follows: • The activity of property development and the level of property developments that is outlined to occur, does have a significant commercial purpose or character. • There does not appear to be an intention by you to engage in business: o Your letter to the Developer during initial engagement outlined that you did not wish to get involved with the property development. o Recital E states that you and the Developer have agreed that you are not a developer and will not be involved in the development. • It is apparent that the activity will be profitable. • Your activities under the Development Agreement do not involve much repetition and regularity in the activities by you. o The Developer has secured the Development Approval for the land and is proceeded with the activities to develop the lots. o Your involvement in the activity is limited to providing consents and accesses to the land and facilitating the sale of lots and distributing proceeds as the legal landowner. o You have not been engaged in property developments in the past. • Engaging a developer to perform the majority of the development would be activities conducted in a manner similar to that of other property developers. Splitting the profits from the development with the development is less indicative of carrying on a business in comparison to engagement on a fee for service basis. • The activity is planned, organised and carried on in a businesslike manner such that it is described as making a profit. However, the relevant activities are predominately undertaken by the Developer and your involvement is to a lower degree. • The development is of a large size, scale and permanency, adding some weighting a conclusion that a business is being carried on. • The activity is not better described as a hobby, a form of recreation or a sporting activity. Overall, your role in the property development process outlined in the Development Agreement is small and relatively (but not entirely) passive. Notwithstanding the commercial nature and strong prospect of profit from the Development our view is that given your lack of intention to conduct a business there would need to be more repetition by you in similar activities to conclude that you are engaging in the business of property development. | Detailed Reasoning - Isolated commercial transaction: Taxation Ruling TR 92/3 Income tax: whether profits on isolated transactions are income (TR 92/3) identifies whether profits from isolated transactions are ordinary income. TR 92/3 considers the principles outlined in the Federal Commissioner of Taxation v. The Myer Emporium Ltd (1987) 163 CLR 199 case and provides guidance in determining whether profits from isolated transactions are income and therefore assessable under subsection 25(1) of the Income Tax Assessment Act 1936 (ITAA 1936). Where you are not carrying on a business, a profit from an isolated transaction is generally income when both of the following elements are present (paragraph 6 of TR 92/3): (a) the intention or purpose of the taxpayer in entering into the transaction was to make a profit or gain; and (b) the transaction was entered into, and the profit was made, in the course of carrying on a business or in carrying out a business operation or commercial transaction. It is not necessary that the intention or purpose of profit-making be the sole or dominant intention or purpose for entering into the transaction. It is sufficient if profit-making is a significant purpose (paragraph 8 of TR 92/3). For a transaction to be characterised as a business operation or a commercial transaction, it is sufficient if the transaction is business or commercial in character (paragraph 12 of TR 92/3). Paragraph 13 of TR 92/3 provides some matters which may be relevant in considering whether an isolated transaction amounts to a business operation or commercial transaction, which are the following: (a) the nature of the entity undertaking the operation or transaction (b) the nature and scale of other activities undertaken by the taxpayer; (c) the amount of money involved in the operation or transaction and the magnitude of the profit sought or obtained; (d) the nature, scale and complexity of the operation or transaction; (e) the manner in which the operation or transaction was entered into or carried out; (f) the nature of any connection between the relevant taxpayer and any other party to the operation or transaction; (g) if the transaction involves the acquisition and disposal of property, the nature of that property; and (h) the timing of the transaction or the various steps in the transaction In very general terms, a transaction or operation has the character of a business operation or commercial transaction if the transaction or operation would constitute the carrying on of a business except that it does not occur as part of repetitious or recurring transactions or operations (paragraph 49 of TR 92/3). Paragraphs 41 and 42 of TR 92/3 considers the purpose of profit-making for the sale of property: 41. The taxpayer must have the requisite purpose at the time of entering into the relevant transaction or operation. If a transaction or operation involves the sale of property, it is usually necessary that the taxpayer has the purpose of profit-making at the time of acquiring the property. However, as the High Court decisions in White v. FC of T (1968) 120 CLR 191; 15 ATD 173 and Whitfords Beach demonstrate, that is not always the case. (See also Menzies J in FC of T v. N.F. Williams (1972) 127 CLR 226 at 245; 72 ATC 4188 at 4192-4193; 3 ATR 283 at 289 and Whitfords Beach Pty Ltd v. FC of T (F.C.) 79 ATC 4648 at 4659; 10 ATR 549 at 567). (a) as the capital of a business; or (b) into a profit-making undertaking or scheme with the characteristics of a business operation or commercial transaction, the activity of the taxpayer constitutes the carrying on of a business or a business operation or commercial transaction carrying out a profit-making scheme, as the case may be. The profit from the activity is income although the taxpayer did not have the purpose of profit making at the time of acquiring the asset. | Detailed Reasoning - Application to your circumstances: We consider the transaction of entering into the Development Agreement with the Developer would be considered commercial in nature on the basis of the following factors: • The scale of the transaction/project is very large. • The nature of the Developer who is a professional development company. • The Development Agreement is highly complex, and the Development is clearly undertaken in a business-like manner. • You are not a mere passive investor and have responsibilities and involvement under the Development Agreement including: o You have provided the Property as security for a Finance Facility to fund the project. o You have agreed to allow the Finance Facility limit to be doubled. o You have the possible power of veto on sale prices for the Lots. o You have the possible power of veto on the Project Account and Finance Facility expenditure that is not certified by the quantity surveyor. o You act as party to all sale contracts as legal owner. o You have the responsibility to pay GST to the ATO within 3 days if required to be registered and if received under the sale contracts. o You have the responsibility to deal with sale proceeds as per the Development Agreement. Rather than listing the Property for an en globo sale, you have chosen to enter into the Development Agreement arrangement with the Developer. An arrangement you contend provided for the mere realisation of your land to best advantage with the Deferred Land Value Instalment allowing for increases in land values during the time of development. We argue that the arrangement went beyond a mere realisation of the Property. The Development is significant in size and carries the complex hallmarks of a modern property development with high total development costs. Your agreement to allow the Property to be used as security for the Finance Facility in order to fund the Development indicates a preparedness for you to be exposed to the risks associated with developing the Property. As a reward this risk, the Development Agreement provides for you to share half the profits from the Development with the Developer as the Deferred Payments. Our view is that your activity in entering the Development Agreement is the type of activity that, but for the fact it does not occur as part of a repetitious or recurring number of transactions or operations, would constitute the carrying on of a property development business. The result will be the subdivision and sale of a large number of residential allotments. Our view is that the transaction goes beyond simply improving a capital asset. Consequently, your profit from the isolated commercial transaction will be assessable to you as ordinary income under section 6-5 of the ITAA 1997. Note that CGT event A1 occurs when you dispose of your ownership interest in the lots to another entity. However, section 118-20 of the ITAA 1997 reduces the capital gain assessable by the profit already reported as assessable income under section 6-5 of the ITAA 1997 for the profit from an isolated transaction. | Detailed Reasoning - Question 3: In this section of the ruling all references to legislation are to the A New Tax System (Goods and Services Tax) Act 1999 unless otherwise specified. | Summary: You are required to be registered and your supplies of the subdivided lots at the property are taxable supplies pursuant to section 9-5 of the GST Act. | Detailed Reasoning - Taxable Supply Analysis:: You will only be required to register for GST if you are making taxable supplies of the relevant property. Section 9-5 provides that 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 the indirect tax zone; 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. For the supply of each of the subdivided lots (the lots) to be a taxable supply, all of the requirements in section 9-5 must be satisfied. The Property is connected with the indirect tax zone as the property is located in Australia. Additionally, a large number of lots are currently under contracts and have been sold or options have been provided which amount to supplies for consideration. There is no prospect that the supplies of the lots are GST-free or input taxed. You are currently not registered for GST. Before considering whether you should be required to be registered, the analysis begins with assessing whether the supplies you make for consideration are made in the course of an enterprise you conduct. This must be considered in view of the facts and information you have provided and the current law. | Detailed Reasoning - Enterprise: One of the conditions attached to a taxable supply under section 9-5 is that the supply be in the course or furtherance of an enterprise that you carry on per paragraph 9-5(b). In the course or furtherance of an enterprise requires a connection between the sale and the entity's enterprise, rather than with some other activity, for example a sale that is for a private purpose. The term 'carrying on' in relation to an enterprise is defined in section 195-1 and includes doing anything in the course of the commencement or termination of the enterprise. Section 9-20 relevantly defines 'enterprise' to include an activity, or series of activities, done: • in the form of a business • in the form of an adventure or concern in the nature of trade or • on a regular or continuous basis, in the form of a lease, license or other grant of an interest in property. The ATO view on the meaning of the term 'enterprise' is explained in detail in Miscellaneous Taxation RulingMT 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). It is necessary to consider whether your activities are in the form of a business or an adventure or concern in the nature of trade, carried out in a business-like and commercial manner. The issue is whether the vacant land you initially purchased has been changed to a revenue asset as a result of your decision to undertake development activities on your land. Paragraph 178 of MT 2006/1 lists a number of indicators considered when attempting to determine whether an activity or series of activities amount to a business: • a significant commercial activity; • a purpose and intention of the taxpayer to engage in commercial activity; • an intention to make a profit from the activity; • the activity is or will be profitable; • the recurrent or regular nature of the activity; • the activity is carried on in a similar manner to that of other businesses in the same or similar trade; • activity is systematic, organised and carried on in a businesslike manner and records are kept; • the activities are of a reasonable size and scale; • a business plan exists; • commercial sales of product; and • the entity has relevant knowledge or skill. Furthermore, 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 on a regular 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. Paragraph 244 to 261 of MT 2006/1 explains that 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. That ruling refers to 'the badges of trade' and outlines a number of factors that may be taken into account when determining whether assets have the characteristics of 'trade' and held for income producing purposes, held as an investment asset, or for personal enjoyment. Paragraph 262 of MT 2006/1 acknowledges that the question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions. Paragraph 263 continues stating that the issue to be decided is whether the activities being conducted 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 (profit making undertaking or scheme) as opposed to the mere realisation of a capital asset. Paragraph 270 of MT 2006/1 provides that in isolated transactions, where land is sold that was purchased with the intention of resale at a profit (which would be ordinary income) the Commissioner considers these activities to be an enterprise. This would be so whether the land was sold as it was when it was purchased or whether it was subdivided before sale. An enterprise would be carried on in this situation because the activities are business activities or activities in the conduct of a profit-making undertaking or scheme and therefore an adventure or concern in the nature of trade. The cases of Statham & Anor v. Federal Commissioner of Taxation [1988] FCA 463 ( Statham ) and Casimaty v. FC of T [1997] FCA 1388 ( Casimaty ) established a number of factors in determining whether activities are a business or an adventure or concern in the nature of trade with reference to real property transactions including: • 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. No single factor will be determinative of whether the activity or activities will constitute either a business or an adventure or concern in the nature of trade. The following discussion is centred on applying the facts of this case to the above indicators of a business and the factors used in determining whether activities are a business or an adventure or concern in the nature of trade (with reference to the indicators established in Statham and Casimaty in the context of real property transactions). In your case, you are not carrying on a business of property development. However, we need to consider whether you are carrying on an adventure or concern in the nature of trade which has a flavour of enterprise. Example 28 from MT 2006/1 provides: 271. Stefan and Krysia discover that the local council has recently changed its by-laws to allow for smaller lots in the area. They decide to take advantage of the by-law change. They purchase a block of land with the intention to subdivide it into two lots and to sell the lots at a profit. They carry out their plan and sell both lots of land at a profit. 272. Stefan and Krysia are entitled to an ABN in respect of the subdivision on the basis that their activities are an enterprise being an adventure or concern in the nature of trade. Their activities are planned and carried out in a businesslike manner. Example 30 from MT 2006/1 provides: 277. Steven buys a 100-hectare property. He believes that the property may be suitable to be developed as a resort. After investigation he decides that it would be more profitable to subdivide and sell the property. He decides to subdivide the property into one hectare lots and sell these. 278. He engages a town planner and a surveyor to survey the 100-hectare property and to establish how many hectare lots it can be subdivided into. Steven then approaches the local shire council and is advised that he may subdivide his property into 65 one hectare lots. 279. However, Steven must satisfy various shire council conditions if he wishes to obtain development approval. They are: • the making of new sealed roads with kerbing and channelling within the subdivision; • the provision of water, electricity and telephone services to the new lots; • the provision of culverts and other storm water drainage works; and • the transfer of certain areas of land to the shire council for parks, environmental and other public purposes. 280. Steven consults his accountant and legal advisers. Together they prepare a comprehensive business plan for the project. They approach a commercial lender to arrange a substantial loan, secured by the property, to cover all development costs and related expenses. 281. After gaining development approval from the council, Steven then engages a project manager who arranges for all the survey and subdivisional works to be carried out. Contractors are engaged to put in the roads, complete all the necessary drainage works and install the water, electricity and telephone services. 282. Steven also investigates a marketing strategy that will provide the best return for his project. Sales agents are retained to carry out the marketing program which involves a comprehensive advertising campaign using a promotional estate name, 'Bush Turkey Hill'. 283. Steven is entitled to an ABN on the basis that the subdivision is an enterprise and it is more than a mere realisation of a capital asset. Significant factors that are relevant which lead to this conclusion are as follows: • there is a change of purpose for which the whole property is held; • there is a comprehensive plan for the development of the property; • the subdivision is developed in a businesslike manner for example there is a project manager, significant development costs, a comprehensive marketing campaign including an estate name for the land; and • a substantial loan has been taken out to finance the development. In Ian Mark Collins & Mieneke Mianno Collins ATF The Collins Retirement Fund v Commissioner of Taxation [2022] AATA 628 ( Collins ), Senior Member Olding considered the relevant authorities on the question of the capital and revenue distinction and scale. In Collins , the AAT focused on 11 lots compared to 105 in Casimaty , 80 in McCorkell and Commissioner of Taxation [1998] AATA 562 and 55 lots in Statham . Senior Member Olding reviewed the existing authorities and considered that even smaller scale development subdivisions are more complex than previously were the case. Further, it is no defence that the landholder engaged experts to do the work because that is exactly what would be expected in a business-like arrangement. From paragraph 58 in Collins , Senior Member Olding provided the following analysis: The Tribunal in McCorkell was heavily influenced by the judgement of the Full Federal Court in Statham , the third case referenced by the applicant. Again, that case is quite different to the current matter. The Court accepted a submission that the subdivision was simple and had few of the hallmarks of a business enterprise. Only limited clearing and earthworks were involved, the owners relying on the local council to carry out roadworks and other infrastructure. 59. All in all, examination of these cases underlines, with respect, the wisdom of the observation in the judgement of Gibbs CJ in the Whitfords Beach case that it can be ' unprofitable to examine the particular circumstances of the various cases in which the question [of whether a subdivision and sale is a mere realisation of a capital asset] has been discussed. ' 60. At a more general level, his Honour also noted, along with Mason J, the significance of the designation ' mere ' in answering this question. Mason J also observed: I do not agree with the proposition which appears to be founded on remarks in some of the judgments that sale of land which has been subdivided is necessarily no more than the realization of an asset merely because it is an enterprising way of realizing the asset to the best advantage. That may be so in the case where an area of land is merely divided into several allotments. But it is not so in a case such as the present where the planned subdivision takes place on a massive scale, involving the laying out and construction of roads, the provision of parklands, services and other improvements. All this amounts to development and improvement of the land to such a marked degree that it is impossible to say that it is mere realization of an asset. We need to bear in mind that the subdivision of broad acres into marketable residential allotments involves much more in the way of planning, development and improvement than was formerly the case. 61. It may not be accurate to describe the development in the current matter as on a massive scale. But it clearly involved substantial works of the kind mentioned by Gibbs CJ in the way of planning, development and improvement of the land. 62. I have considered each of the factors pointed to by the applicant in written and oral submissions but consider they do not outweigh those I have identified in favour of the view that the applicant's activities take the character of this matter beyond mere realisation into a commercial venture entered into for the purpose of obtaining the gain on sale of the subdivided lots. 63. That the applicant, with no professional experience in land development, should engage others to carry out works and market the subdivided lots is scarcely surprising. The engagement of contractors to provide advice and carry out engineering and construction works and real estate agents to market land is, I would have thought, a hallmark of modern subdivision projects. While that may mean Mr Collins was relatively passive in respect of these activities, I do not accept that this weighs heavily in the applicant's favour in the context of a development of this nature which involved the undertaking of extensive skilled work. | Detailed Reasoning - Application to your situation: You are currently the registered proprietor of the Property, having acquired it jointly with your spouse who has recently passed away. You are not registered for GST and have not previously been involved in the subdivision and sale of land. We have taken into account that you acquired the land as a residence and as such you did not have a profit motive at that time. However, we do consider that intention changed at the time you entered into the Development Agreement. The relevant material facts and information you provided indicating a business-like arrangement are: Based on the material facts and relevant information provided, we consider the property subdivision to be a significant commercial activity with a large number of subdivided lots resulting. Estimates show that the property subdivision will likely be profitable based on the range of sales and cost estimate provided. The Development Agreement provided does not envisage any loss position. Although you will not actively participate in the development process, you have engaged the services of an entity that will provide project development services for a development fee in in the form of their 50% share of the Profits from the Development. We have considered that at the time of acquisition and during the earlier years of your ownership you held the Property for private purposes, to house your horses and as a place to reside. However, we consider that there is a change of purpose for which the Property was initially held, whereby a coherent plan has been developed for the subdivision of the Property through the engagement of a property development company as part of the Development Agreement. From the facts provided, there is a level of development of the Property that is complex and will result in a large number of subdivided land lots. Based on balancing the above factors you are engaged in an enterprise as you are engaged in an adventure in the nature of trade. | Detailed Reasoning - Requirement to register for GST: Under section 23-5 you are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets or exceeds the registration turnover threshold of $75,000. You are required to be GST registered because the sale of the subdivided lots at the property will exceed the GST turnover threshold of $75,000. Since you are not currently GST registered, you can backdate GST registration from when you commenced activities in relation to developing and selling the subdivided lots. The issue of when the enterprise commences is discussed in MT 2006/1 from paragraphs 120 to 148. As stated earlier, 'carrying on' includes activities in the commencement (and conclusion) of the enterprise. MT 2006/1 notes that the definition means that 'it follows that activities done by an entity that are part of a process of beginning or bringing into existence an enterprise are activities in carrying on an enterprise'. Those initial activities may have been relatively minor. You stated that you did not do anything to bring about changes to the zoning but that change did bring you a number of offers to consider. The initial activities cannot be too remote from fruition per paragraph 127 of MT 2006/1. We would consider that activities undertaken in assessing the offers would not be considered as too remote from fruition and may be the steps commencing your enterprise. | Detailed Reasoning - Conclusion: Based on a consideration of all relevant factors we consider that your activities are not in the course of carrying on a business of property development. However, we consider you are carrying on an adventure or concern in the nature of trade which meets the definition of 'enterprise' for GST purposes in relation to the property subdivision and supplies or sales of the subdivided land lots. We consider that your supplies or sales of the subdivided lots are supplies of revenue assets as an adventure in the nature of trade. Those activities meet the definition of and form part of your enterprise for GST purposes. As all the conditions of section 9-5 are met, the supplies will be taxable supplies under section 9-5. As a result, you are required to be registered for GST pursuant to section 23-5. You can claim eligible input tax credits under section 11-20 in relation to the costs and expenses incurred as part of your property subdivision enterprise. | Detailed Reasoning - Margin Scheme: You may be eligible for the margin scheme which provides concessional GST treatment if the requirements under Division 75 are met. Subsection 75-5(1) provides, amongst other things, that the margin scheme applies in working out the amount of GST on a taxable supply of (freehold in this case) real property. It is noted that none of the exclusions in subsection 75-5(3) apply as you purchased the property before GST commenced. Subsection 75-5(1) also provides that you and the recipient of the supply must have agreed in writing that the margin scheme is to apply at the time the supply of the property is made. As some of the lots have been sold, where the contracts of sale do not include provisions dealing with agreement under the margin scheme, where you feel you can obtain agreement with the purchaser, subsection 75-5(1A) may assist you. Subsection 75-5(1A) states that the agreement must be made: (a) on or before the making of the supply; or (b) within such further period as the Commissioner allows. | Detailed Reasoning - GST at Settlement: On or after 1 July 2018, if you supply potential residential land you are required to notify your purchaser in writing as to whether or not they have a withholding obligation. As you are required to be registered for GST, the supplies are taxable supplies of potential residential land. Consequently, as purchasers have a withholding obligation you must provide additional information, in writing, to your purchaser. The standard rate is 10 percent; however, if you are using the margin scheme the withholding rate will be 7 percent. Detailed information can be found in Law Companion Ruling LCR 2018/4 Purchaser's obligation to pay an amount for GST on taxable supplies of certain real property .

whether the activity has a significant commercial purpose or character | For example, if a taxpayer acquires an asset with the intention of using it for personal enjoyment but later decides to venture or commit the asset either: | A developer, Company Y, has approached you with a proposal to develop the Property. They were one of at least eight that sought to enter an agreement with you, but you did not approach an agent to sell the land as an en globo block. | You stated you want to realise the maximum value for the Property in the most enterprising and economically beneficial way with minimal involvement, but you entered into a highly complex development agreement with another entity requiring you to act in an arrangement with all the hallmarks of a business deal. | You were approached by a number of developers and ultimately you chose the Company Y (the Developer) to carry out works to bring the land to a standard required by the local council and relevant authorities and then sell individual, subdivided blocks of land to the public. You have entered a Development Agreement setting out the contractual terms with the Developer for those works to be carried out. | You will remain the legal and beneficial owner of the Property throughout the course of the Development and will not be involved with the provision of the Project Services although you have mortgaged the property to finance the development via the Finance Facility. | The Developer will undertake the Development by carrying out the services as set under the Development Agreement. | The Developer will not provide its own finance for the project/development costs and will use the Property as security for any borrowings together with other securities and guarantees that the project lender may require. This is in line with industry practice. | The Developer will make all decisions in relation to the marketing of the individual lots. | You bear all responsibility and indemnify the Developer for any cost, loss, or liability it suffers as a result of your ownership of the land except if the Developer is liable under the provisions of the Development Agreement or if it is negligent. | You receive the proceeds from the sale of each Lot, retaining your Initial Payment, depositing the net proceeds into the Project Account. You are likely to receive further amounts as your Deferred Payment, being your 50% share of the profits from the Development. | There is a Development Approval in place. | You chose the offer from Company Y as the best from a number of offers. You stated in correspondence with their related entity that you knew their reputation and you felt you could trust them. | The development is structured into multiple stages and stage one is underway. | The Development Agreement provided for construction costs to be met from the Finance Facility at a certain level, however, you agreed to increase the Finance Facility, thereby increasing your risk level. | Many lots are currently under contracts. A further number of lots have entered into an option agreement that, if fully exercised, will generate a further revenue in sales. Contracts are subject to a sunset clause. Should the Developer be unable to have titles registered by the sunset date, purchasers have the option to rescind the sales contract. | You have provided estimates of the total sales proceeds from the Development.