Private ruling: GST and sale of vacant property
Date of advice: 28 April 2021
Published: July 2021

Ruling: Q1: Will the sale of the vacant land located in Australia (vacant land) be a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No. The sale of the vacant land will not be a taxable supply under section 9-5 of the GST Act as the sale will not be made in the course or furtherance of an enterprise that individual X and individual Y carry on. The sale will be the mere realisation of a capital asset. No GST is payable on the sale. You may need to notify the purchaser in writing that they do not have a GST withholding obligation and do not need to pay a GST withholding amount from the contract price of the property to the Australian Taxation Office (ATO) when purchasing the property. This can be included in the sale contract or in a separate document prior to settlement.

Relevant facts and circumstances: Individual X and individual Y (you) are a married couple since (year) and are not registered for GST as individuals or as a partnership. Your occupations are manager with a particular organisation and public servant. In (year), you purchased: • a (number) acre property, located in Australia (Property A) • a (number) property, located in Australia (Property B) Property A and Property B are located outside the designated township boundary of (town). The zoning of Property A and Property B is low density residential. The zoning of this land has not changed since your initial purchase. Property A and Property B were each vacant land when you purchased them. You borrowed (amount) to purchase Property A, (amount) to purchase property B. You purchased Property A and Property B for lifestyle reasons. The reason for buying so much land was to give space to build a house to live in and enjoy rural/lifestyle living. You did not purchase Property A and Property B for the purpose of making a profit. A local farmer had, prior to your purchase of Property A, been using that property to graze cattle. You gave permission for the local farmer to continue to do so at no cost in order to maintain fire reduction of grass to meet council requirements. This arrangement stayed in place until you utilised the land to conduct a cattle farming hobby activity in (year) on the property. Property B was used as your driveway after its purchase in (year). In (year), you borrowed (amount) to construct a house which would be your principal place of residence on Property A. You have continued to use this house as your principal place of residence to the current time with Property B as your driveway. From (year) to (year) you ran cattle on property A only as a hobby. This activity was not profitable. You ran a small number of cows and calves (on average) for the (number) years. Calves were born each year from (year) to (year) and were sold each year until all cattle were sold in (year). The cattle were used to maintain the property for council fire hazard reduction purposes which assisted in saving the house from fire during the lead up to fires in a certain year (the fires impacted Property A and Property B). From (year) (when you ceased your cattle farming hobby activity) to the present time, a local farmer has been grazing cattle on Property A only. Your motivation behind allowing this arrangement was to maintain fire reduction of grass to meet council requirements. The local farmer offered you a nominal amount per head per week and their cattle numbers have varied between a (number) to a maximum of (number). The payment received amounts to less than the cost to maintain the property that is water and council rates, maintenance, insurance, etc. On (date), you re-aligned the boundaries of Property A and Property B to create: • a (number) acre property for Property A, and • a (number) acre property for Property B which would include the house that was originally on property A and the driveway. You realigned the boundaries of Property A and Property B to reduce the workload of maintaining the land. You decided that you could manage the land containing the house and driveway totalling (number) acres and would sell the remaining (number) acres. You did not realign the boundaries for the purpose of making a profit on sale of the land. Property A never had a numbered street address pre-realignment. When the realignment was registered with the relevant department, the address provided by the local council was provided as (address). This was clearly not a desirable address and after contact was made with the local council, the number of Property A was amended to (address). Property A is currently listed for sale as vacant land on the market and will be sold pending completion of the private ruling. The motivation/reason behind selling Property A is to reduce workload associated with maintaining the property. You will not subdivide Property A. You will continue to live in the house on Property B after Property A is sold. You have not claimed income tax deductions for the interest on the loan you borrowed to purchase Property A and Property B. You have not claimed GST credits or income tax deductions in relation to the land. You have not brought Property A or Property B to account as a business or enterprise asset. You do not have expertise in property trading or property development activities. You have not been involved in property trading or property development activities elsewhere and have no plans to do so. You currently own a vacant residential block of land in another region. You are intending to build a house on the land. No income is being earned from this property. You do not carry on any business or enterprise at locations other than the locations referred to above.

Relevant legislative provisions: 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 23-5 | A New Tax System (Goods and Services Tax) Act 1999 section 184-1 | A New Tax System (Goods and Services Tax) Act 1999 section 195-1