Private ruling: GST and subdivision of land
Published: September 2012

Ruling: Q1: Is GST payable on your sale of subdivided land? | A1: No.

Relevant facts and circumstances: You are not currently registered for GST. You have three shareholders. The relevant property was purchased by you over 30 years ago. The property has operated as various types of farm in that time. The trading business (farming) is in the name of a separate partnership. The total area of the property is substantial and the sole purpose of the purchase of the property was farming. The land was not originally bought with the intention of resale. Nearly 20 years ago your land was rezoned as to rural residential. This was part of larger rezoning issued by the State and local governments rather than through any submissions made by you. A substantial amount of time later you employed professionals in subdivisions to commence relevant background and preparation work. You have also employed project managers. Development Applications (DAs) have been completed and approved for new lots. The DA is in numerous stages to allow for gradual realisation of the land. Work is also to be done gradually in stages to allow you time to realise the land. You have currently completed the first stage, under which two lots have been completed and sold. All works for the subdivision were the minimum work required in accordance with council's conditions and the Development Control Plan. You have not built any buildings or other structures on the land. You have previously advised that you expect the whole of the development will not be completed within 15 years. You have not previously developed land prior to this subdivision and do not have any intention to do so again in the future. You have previously received a private ruling on whether the proceeds of the sales of the subdivided lots are assessable income or subject to capital gains tax. This ruling found that your activities represent a mere realisation of capital assets rather than income. As you acquired the land prior to 20 September 1985 the capital gains tax provisions do not apply to the sale of the subdivided land.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 23-5 | Section 9-5 | Section 7-1 | Division 38 | Division 40 | Section 195-1

Reasons for decision: Summary: GST is not payable on your sales of subdivided land. As you are not required to be registered for GST you do not make a taxable supply, and therefore GST is not payable. | Detailed Reasoning - Detailed reasoning: Under section 9-5 of the GST Act, you make a taxable supply if you make a 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. As you are making a supply for consideration that is connected with Australia (as the land is in Australia) it is necessary to determine whether the other elements of section 9-5 of the GST Act are met. That is, whether the supply is made in the course or furtherance of an enterprise that you carry on and whether you are registered or required to be registered. As you are an ASIC registered company you are entitled to an Australian Business Number (ABN) whether or not you are carrying on an enterprise. You currently have an ABN, however you are not currently registered for GST. You are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold (section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)). You have advised that the farming enterprise on the land is carried out by a separate entity, being a partnership. The farming enterprise is therefore not carried out by you and you are not registered or required to be registered for this enterprise. Therefore you do not make the supply of the land as part of any farming enterprise. Rather, we consider that you have held the farming land as an asset for use by the farming partnership. Where you hold and then sell real property it is necessary to determine whether these activities form an enterprise in their own right. Where the sale of real property is made in the course or furtherance of an enterprise that you carry on and you are registered or required to be registered you will make a taxable supply (to the extent that the supply is not GST-free or input taxed). Miscellaneous Taxation Ruling MT 2006/1 considers the meaning of an entity carrying on an enterprise. While this is for the purposes of entitlement to an ABN, it is relevant to the issue of what constitutes an enterprise generally. Paragraph 1 of Goods and Services Tax Determination GSTD 2006/6 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. Ordinarily, an enterprise means something engaged in on a regular or continuous basis. We consider that your subdivision activity is a one-off activity, that you have held the land for many years, and that you have not previously developed land prior to this subdivision and do not have any intention to do so again in the future. Therefore we are satisfied that you are not in the business of land development. However, an enterprise also includes an activity or series of activities carried on 'in the form of an adventure or concern in the nature of trade'. An adventure or concern in the nature of trade may include isolated transactions that do not amount to a business but which have the characteristics of a business deal. Relevantly, MT 2006/1 ruling considers when isolated transactions and sales of real property will constitute an enterprise (at paragraphs 262-302). The factors considered in MT 2006/1 are similar to the factors considered in your ruling for income tax purposes, and in particular the case of Casimaty v FC of T (1997) 151 ALR 242 (as considered in your previous ruling) is referred to in MT 2006/1. We note that we have determined for income tax purposes that your activities are in the nature of realisation of a capital asset. To determine whether there is an enterprise MT 2006/1 considers issues such as whether there is a change in purpose for which the land is held, whether additional land has been acquired, whether there is a coherent plan for the subdivision of the land, whether there is a business organisation such as a manager, office and letterhead for the development, whether borrowed funds are used for the acquisition or subdivision, whether there is a level of development beyond that necessary to secure council approval and whether buildings have been erected on the land. With these factors in mind, relevant facts in your case are that you have held the land for a significant period of time, and the land has continued to be used as a farm. You have not bought additional land, and the land was not originally bought with the intention of resale (but rather for making the land available for farming enterprises). The rezoning of the land was due to a rezoning initiated by state and local governments rather than any action on your part. Work has not been undertaken on works or developments on the land beyond those which are necessary for council requirements. You have not built any buildings or other structures on the land. Also, work is to be done gradually in stages to allow you time to realise the land. You have previously advised that you expect the whole of the development will not be completed within 15 years. Taking into account all of these factors, we consider that your activities in relation to the land do not amount to carrying on an enterprise. Rather, you are realising a capital asset that you already held. As you are not carrying on an enterprise you are not required (or entitled) to be registered for GST. As your supply of real property is not made in the course or furtherance of an enterprise that you carry on and you are not registered or required to be registered your supply of real property is not a taxable supply. GST is only payable on taxable supplies (and taxable importations) (section 7-1 GST Act). As you do not make a taxable supply GST is not payable on this supply. As your supply is not a taxable supply under general principles, it is not necessary to determine wether it is GST-free or input taxed under Division 38 or Division 40 respectively. However, for the sake of completeness we note that the supply would not be GST-free or input taxed if you were carrying on an enterprise and registered (or required to be registered) for GST. Concessions for farmland only apply where subdivided farm land is sold to an associate for residential purposes at less than market value (38-475 GST Act), or where the farm land will be continued to be used for farming (38-480 GST Act). Neither of these circumstances applies in this case. You are selling vacant land for residential purposes to non-associates at market value. Even though the sale is for residential purposes, the vacant land cannot be considered to be capable of being occupied as a residence or for residential accommodation (sections 40-65 and 195-1 GST Act).

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