Private ruling: GST and the supply of real property
Published: November 2014

Ruling: Q1: Are you making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you sell the Land? | A1: No. The requirements of making a taxable supply include that the supply is made in the course or furtherance of an enterprise that you carry on. We consider that you are not carrying on any 'enterprise' as defined in section 9-20 of the GST Act. Therefore, you must request cancellation of your GST registration pursuant to section 25-50 of the GST Act. As all the requirements of section 9-5 of the GST Act are not satisfied, you will not be making a taxable supply when you sell the property.

Relevant facts and circumstances: You) are a privately owned company established on ddmmyyyy and registered for GST from 1 July 2000. You acquired the Land soon after the company was established. The Land is X hectares and at the time of acquisition, the land was rural in nature. At the time the Land was acquired, a third of the shares were owned by a discretionary trust, and the remaining two-thirds of the shares were owned by individuals. All individual shareholders have since passed away and their shares have passed to their respective children. Over the years, the Land has been used informally for agistment on an ad hoc basis. No revenue has been generated from this use and the arrangement has always been of an informal nature (e.g. the other party is to maintain fencing and ensure the grass is maintained in return for use of the land for agistment). No written agreement for the use of the Land for agistment has ever been entered into. Between the 20XX to 20XY financial years you spoke to developers about realising the capital growth in the Land. The discussions were preliminary in nature, and no agreement was entered into and no payment was made. In 20XX you also engaged surveyors to identify any native fauna or flora or other protected species on the Land, in order to assist with the valuation process of the Land. The studies undertaken were provided to a Valuers. On ddmmyyyy the local council decided to rezone the area. The rezoning was the result of a government decision. Aside from being involved in submissions to ensure that the planning scheme for the local district did not have an adverse impact on the value of the Land, you did not undertake any other lobbying to influence the council's decision. As part of the council's decision, the council also designated a large portion of the Land as being undevelopable, prohibiting development of this designated portion of the Land. Following the council's decision, you engaged surveyors to undertake further work, including investigating potential planning activities to ascertain the impact of the council's decision on the value of the Land. The council's decision had the overall result of substantially increasing the value of the Land. As a result of the re-zoning, the land tax assessed on the Land significantly increased. You could no longer afford to meet these increased holding costs and a decision was made to sell the Land and you engaged a real estate agent. On ddmmyyyy you entered into a contract to sell the Land, as a single parcel of land, to an unrelated third party. The sales contract includes a 'plus GST' clause, which effectively provides that if GST is payable by you, the purchaser is to reimburse you for the amount of GST payable. The sales contract also provides the purchaser with a set period of time during which the purchaser can undertake due diligence on the site, and on expiry of this due diligence period, the purchaser has pre-settlement access rights to the property. As part of these pre-settlement rights, the purchaser is entitled to obtain subdivision of the Land and to take transfer of any part of the Land the subject of a plan of subdivision prior to settlement. You contend that you are not carrying on an enterprise and should never have registered for GST. The informal agistment on an ad hoc basis does not amount to an enterprise. Further, your dealings with the Land do not amount to an enterprise due to the following: • You did not change the purpose for which the Land was held. • No land was acquired to be added to the original parcel of Land • The Land was not brought into account as a business asset. • The Land was never subdivided. • There was no business organisation. All you did was engage an estate agent to sell the Land, after taking measures to determine the value of the Land. • You did not engage in any development of the Land. • You did not erect any buildings on the Land. You have claimed GST credits on various purchases since 1 July 2000 and have not reported any sales.

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 Subsection 9-20(1) | A New Tax System (Goods and Services Tax) Act 1999 Subsection 9-40, and | A New Tax System (Goods and Services Tax) Act 1999 Section 25-50.