Private ruling: GST and subdivision of land
Published: November 2014
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you required to register for goods and services tax (GST)? | A1: Yes

Relevant facts and circumstances: You purchased a property the sale of which settled in October 2014. The property has been funded by borrowing funds of a relative and a bank loan. The property has a house on it which you intend to arrange contractors to demolish. The property is run-down with little maintenance done for a number of years due to the age of the previous occupant. It would require substantial renovation to bring up to the standard you require. The property will then be subdivided into two lots upon one half you will build a house to be used as your own dwelling. The other block will be sold for an amount exceeding $75,000. You became aware of the property and identified that by demolishing and subdividing you could afford to obtain a house in the desired suburb.

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

Reasons for decision: Summary: You are required to register for GST as the sale of the subdivided lot is in the course or furtherance of an enterprise you are carrying on. | Detailed Reasoning - Detailed reasoning: Under section 23-5 of A New Tax System (Goods and Services Tax) Act 1999 (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 (currently $75,000). The issue to be decided is whether your activities have been done in the form of an adventure or concern in the nature of trade (profit making undertaking or scheme) and therefore you would be considered carrying on an enterprise, as opposed to the mere realisation of a capital asset. Miscellaneous Tax Ruling MT 2006/1 provides guidance on the meaning of enterprise and as discussed in paragraph 270 of the ruling where land is sold that is purchased with an intention of resale at a profit the Commissioner considers these activities to be an enterprise. This is the case whether the land was sold as it was or subdivided before sale. In your case you purchased the property with the intent to demolish the existing dwelling and subdivide into two lots. The ability to sell a portion of the land by subdividing is assisting in funding the building of your home. There is a reasonable expectation of profit or gain as your plan will enable you to build and live in a house on one of the subdivided lots. As you have made a purchase with the intent to resell at a profit you are carrying on an enterprise and therefore will be required to register for GST. | Detailed Reasoning - Further issues for you to consider: You may wish to consider your eligibility to use the margin scheme when accounting for the GST payable on the sale of the subdivided lot. The amount of GST you must normally pay on a property sale is equal to one-eleventh of the total sale price. When you use the margin scheme, the amount of GST you must pay on a property sale is equal to one-eleventh of the margin. Your margin is generally the difference between the sale price and the amount you paid for the property. There is more information available on our website www.ato.gov.au in relation to the margin scheme.