Private ruling: GST and sale of subdivided lots
Published: August 2013

Ruling: Q1: Will your sale of the subdivided lots be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? Advice No, the sale of your subdivided lots will not be a taxable supply under section 9-5 of the GST Act.


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 23-15. | A New Tax System (Goods and Services Tax) Act 1999 Section 195-1. Reasons for decision | GST is payable on taxable supplies. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (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 Australia; 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. | (*denotes a term defined in the GST Act) | All the elements of section 9-5 of the GST Act must be satisfied for a supply to be a taxable supply. | In this case, the sale of the subdivided lots will be for consideration and the supply will be connected with Australia as the land is in Australia. As such, the requirements in paragraphs 9-5(a) and 9-5(c) of the GST Act will be satisfied. | Therefore, the issues for consideration are whether the sale of the subdivided lots will be made in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b) of the GST Act) and whether you will be required to be registered for GST as you are currently not registered for GST (paragraph 9-5(d) of the GST Act). | Whether the sale of the subdivided lots will be made in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b) of the GST Act) Section 9-20 of the GST Act defines 'enterprise' to include, amongst other things, an activity, or series of activities, done in the form of a business or in the form of an adventure or concern in the nature of trade. | MT 2006/1 provides guidance on the meaning of 'enterprise' for the purposes of entitlement to an Australian business number. | 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. Whether or not an activity, or series of activities, constitutes an enterprise is a question of fact and degree having regard to all of the circumstances of the case. | Paragraph 234 of MT 2006/1 distinguishes between a business and an adventure or concern in the nature of trade. It provides that the term business would encompass trade engaged in on a regular or continuous basis. However, it goes on to say that an adventure or concern in the nature of trade may be an isolated or one-off transaction that does not amount to a business. | Based on the information provided, your proposed sale of the subdivided lots will be a one-off activity, and is not an activity or series of activities done in the form of a business, or part of a series of property development and/or property trading activities. Therefore, we shall consider whether your sale of the subdivided lots is an activity done in the form of an adventure or concern in the nature of trade. | Paragraph 244 of MT 2006/1 provides further guidance on adventures and concerns in the nature of trade. It states: | 244. 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. Such transactions are of a revenue nature. However, the sale of the family home, car and other private assets are not, in the absence of other factors, adventures or concerns in the nature of trade. The fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature. | The issue to be decided is whether the activities 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. | Paragraphs 264 to 266 of MT 2006/1 state: | 264. The cases of Statham & Anor v. Federal Commissioner of Taxation ( Statham ) and Casimaty v. FC of T ( Casimaty ) provide some guidance on when activities to subdivide land amount to a business or a profit-making undertaking or scheme. In these cases, farm land was subdivided and sold. Minimal development work was undertaken to meet council requirements and to improve the presentation of certain allotments. On the particular facts of these cases the courts held that the sales were a mere realisation of a capital asset. | 265. From the Statham and Casimaty cases a list of factors can be ascertained that provide assistance in determining whether activities are a business or an adventure or concern in the nature of trade (a profit-making undertaking or scheme being the Australian equivalent, see paragraphs 233 to 242 of this Ruling). If several of these factors are present it may be an indication that a business or an adventure or concern in the nature of trade is being carried on. These factors are as follows: | · 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. | 266. In determining whether activities relating to isolated transactions are an enterprise or are the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each particular case. This may require a consideration of the factors outlined above; however there may also be other relevant factors that need to be weighed up as part of the process of reaching an overall conclusion. No single factor will be determinative rather it will be a combination of factors that will lead to a conclusion as to the character of the activities. | After considering the factors in paragraph 265 of MT 2006/1 and the information provided, we consider that the selling of the subdivided lots is a mere realisation of a capital asset which does not amount to the carrying on of an enterprise for GST purposes as: | · in your case you intended to keep the property and use as your family home at the time of purchase and not for the purpose of resale for commercial gain. This is demonstrated by the length of time you have held your interest in the land; | · there was no additional land acquired to be added to the property and the property was not accounted as a business asset; | · only minimum improvements to the land are made in order to meet the requirements of the DA approved by the Council; | · you are not in the business of acquiring, developing and selling land. You do not have a site office, secretary or letterhead relating to the subdivision activities; | · no buildings will be erected on the subdivided lots; | · interest on money borrowed for the subdivisional costs has not been claimed as a business expense for income tax purposes and you have not claimed any input tax credits for GST purposes; and | · you will borrow funds for the subdivision of the lots but it is a requirement which will enable you to do the subdivision of the lots. | Since you will not be carrying on an enterprise when selling the subdivided lots, the requirement of paragraph 9-5(b) of the GST Act will not be met. | Required to be registered (paragraph 9-5(d) of the GST Act) | Under section 23-5 of the GST Act, you are required to be registered if: · you are carrying on an enterprise, and | · your GST turnover meets the registration turnover threshold (currently $75,000). | As determined above, the sale of the subdivided lots does not amount to an enterprise for GST purposes and therefore you will not be required to be registered for GST. Accordingly, section 23-5 of the GST Act will not apply. | As you are not registered, nor required to be registered for GST, the requirement in paragraph 9-5(d) of the GST Act will not be satisfied. Summary | As all the requirements in section 9-5 of the GST Act will not be satisfied, your sale of the subdivided lots will not be a taxable supply and will not be subject to GST


Relevant facts: You purchased a property in Australia some time ago and you used the property as your main residence for some time. The property remained vacant after you moved to another residence. | You have applied for a development approval to subdivide the property into small residential lots. As you have no experience in subdividing property, you obtained assistance from Company X to survey the land and prepare the development approval application. | You have received the final development approval (DA) from the Council. | You intend to sell the subdivided lots and to use the proceeds to help transition into retirement. | To complete the works required by the Council you: | · intend to use consultants and contractors to perform the subdivision activities; | · will not build anything on the land or perform any works beyond the minimum amount necessary to satisfy the DA; | · will need to borrow money to finance the subdivision. | For the anticipated sale of the divided lots you: | · intend to market the land for sale through a local real estate agent; | · hope to be able to sell the subdivided lots soon; and | · do not intend to retain any lots in the subdivision. | You currently are not registered for GST. Further you have not claimed expenses in relation to the subdivision as deductions for income tax purposes and have not claimed any input tax credits in relation to the subdivision for GST purposes. | Referring to the relevant business factors in the public ruling Miscellaneous Taxation Ruling MT2006/1 you advised the following: | · you have not subdivided property in the past; | · you have no property development business plan. There was no sale office, secretary or letterhead relating to the subdivision activities; | · no additional land was purchased to facilitate the subdivision; | · you contracted with a related party to incur some of the costs relevant to the subdivision activities. Your intention is that the company will on-charge those costs to you when you make the sales of the subdivided lots to third party purchases.