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

Ruling: Q1: Will the sale of the property by the co-owners (you) be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No. We have concluded that the activities of the co-owners in subdividing and selling the lots do not amount to an enterprise and neither individually nor together do you exceed the GST registration threshold. Therefore you are not required to be registered for GST. 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: Entity X and Entity Y acquired a half interest in a property on ddmmyyyy. They formed a partnership, entity A. The balance of the property was owned by related individuals (family members). The property is approximately XX hectares in size and was used for grazing livestock. Neither entity A nor entity X and Y registered for GST however entity A registered an ABN. On ddmmyyyy entity B acquired the other half interest in the Property. Entity B is related to entity A and entity X and entity Y are beneficiaries of entity B. Both parties held the property as tenants in common. Entity A and B did not form a partnership or apply for an ABN. You advised that this was because they were not conducting any enterprise together. When entity B acquired its interest in the property it took on the operation of the grazing and cropping business on the Property. It also operated a separate hire business. Entity B registered for GST on 1 July 2000 and reported annual sales of amounts not exceeding the GST registration threshold from its two enterprises. The land has not been bought to account as a trading asset. The local Council produced a Concept Plan for the area in which your property was located. In 200X the council reviewed the zoning of the area where your property was located with the idea of increasing the residential zoning to high density. On ddmmyyyy a planning agreement was entered into by parties affected by the Concept Plan including yourself. One of the matters in the agreement was for provision of land for the construction of a sub-arterial road (the Road). The Road was to run through your property. Construction of the road began and was completed in late 20XX. The planning agreement was registered on the title to your land along with the other affected landowners. On ddmmyyyy amendments to the Concept Plan was approved effectively allowing land in the area including the property to be zoned for high density residential purposes. Your tax agent advised in a phone conversation on ddmmyyyy that: • Neither you nor any related parties entities have undertaken property development before. • No residences or structures will be erected on either lot as part of the subdivision. • You have not entered into any arrangements with developers in regards to this proposed subdivision. • You did not borrow any additional funds for this project. • You agreed to the resumption of the land for the Road and the Council resumed the land. As a result of increased holding costs, particularly land tax and because the individuals who direct your activities are approaching retirement age you have decided to sell the property. Entity B deregistered for GST purposes from ddmmyyyy as there was no longer any income earned from either enterprise. You entered into a contract to sell the property dated ddmmyyyy subject to you agreeing to subdivide the Property into two lots separated by the Road.

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 9-40, and | A New Tax System (Goods and Services Tax) Act 1999 Section 23-5.