Private ruling: GST on sale of subdividedvacant lots
Date of advice: 5 March 2020
Published: April 2020
Ruling period: 1 July 2020 to 30 June 2021
Date scheme commenced: 1 July 2020

Ruling: Q1: Is the sale of subdivided vacant lots a taxable supply under section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No - the sale is not a taxable supply as all the requirements under section 9-5 of the GST Act are not met. GST is payable on any taxable supply you make. Section 9-5 of the GST Act states 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. If all the elements of section 9-5 of the GST Act are satisfied, an entity will be making a taxable supply. In your case, you are making a supply of the property for consideration, you currently run a leasing enterprise, and the sale is connected with the indirect tax zone. Therefore, paragraphs 9-5(a), 9-5(b) and 9-5(c) of the GST Act are satisfied. Additionally, the sale of the vacant land is neither GST-free nor input taxed. Vacant land upon which a residence may be constructed is not "residential premises" for the purposes of the GST Act. To be residential premises the land must be either occupied as a residence or be capable of being occupied as a residence. Accordingly, it needs to be determined if you are required to be registered for GST as you are not currently registered. Sections 23-5 and 23-15 of the GST Act state that you are required to register for GST if you are carrying on an enterprise, and your registration turnover threshold is $75,000. Pursuant to section 188-10 of the GST Act, you have a GST turnover that meets a particular turnover if: · Your current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the turnover threshold; or · Your projected GST turnover is at or above the turnover threshold. Based on the information you have provided, your current turnover is less than $75,000. Section 188-25 of the GST Act provides that in working out your projected turnover you should disregard: · any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours; and · any supply made, or likely to be made, by you solely as a consequence of: - ceasing to carry on an enterprise; or - substantially and permanently reducing the size or scale of an enterprise. The meaning of capital assets is not defined in the GST Act. Goods and Services Ruling GSTR 2001/7 considers the meaning of 'capital asset' for the purposes of section 188-25 of the GST Act. Paragraphs 31 to 33 of GSTR 2001/7 state: 31. The GST Act does not define the term 'capital assets'. Generally, the term 'capital assets' refer to those assets that make up 'the profit yielding' subject of an enterprise. They are often referred to as 'structural assets' and may be described as 'the business entity, structure or organisation set up or established for the earning of profits'. 32. 'Capital assets' can include tangible assets such as your factory, shop or office, your land on which they stand, fixtures and fittings, plant, furniture, machinery and motor vehicles that are retained by you to produce income. Capital assets can also include intangible assets, such as your goodwill. 33. 'Capital assets' are 'radically different from assets which are turned over and bought and sold in the course of trading operations'. An asset which is acquired and used for resale in the course of carrying on an enterprise (for example, trading stock) is not a 'capital asset' for the purposes of paragraph 188-25(a) Paragraph 36 of GSTR 2001/7 further provides that over the period that an asset is held by an entity, its character may change from capital to revenue or from revenue to capital. For the purposes of section 188-25 of the GST Act the character of an asset must be determined at the time of expected supply. In your case, the vacant land is an asset that helps to produce profit (through rental income) for your enterprise. As such, the land is a capital asset. Therefore, the sale of the property will be regarded as the transfer of a capital asset under paragraph 188-25(a) of the GST Act. Accordingly, the proceeds from the sale of your property will not be included in the calculation of your projected GST turnover. You do not satisfy both limbs of the GST turnover test and as a consequence do not satisfy the fourth limb of section 9-5 of the GST Act as you are not registered and not required to be registered. You therefore are not making a taxable supply.

Relevant facts and circumstances: · You and your spouse own a property with the sole intention of using it as an investment. It is currently leased out. · You are not registered for GST. · Due to the size of the property, you and your spouse applied to subdivide the land into three separate lots. This includes - Lot A: Includes the existing residence. You and your spouse will retain this lot as your investment. - Lot B: A parcel of vacant land you and your spouse want to sell. - Lot C: A parcel of vacant land you and your spouse want to sell · The subdivision was approved, subject to minimum works to facilitate water, stormwater and sewerage connections to the two lots. · You have not claimed any GST credits, nor has there been any finance or interest cost deductions claimed on the costs incurred to subdivide the land. · The land on Lot B and Lot C is currently vacant; you and your spouse have not developed these lots any further than the minimal works required by the council. · You and your spouse would like to sell the two new subdivided lots in order to secure your retirement.

Relevant legislative provisions: Section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 | Section 23-5 of A New Tax System (Goods and Services Tax) Act 1999 | Section 23-15 of A New Tax System (Goods and Services Tax) Act 1999 | Section 188-10 of A New Tax System (Goods and Services Tax) Act 1999 | Section 188-25 of A New Tax System (Goods and Services Tax) Act 1999