Private ruling: Construction of two town houses and the sale of one of them
Date of advice: 10 July 2018
Published: September 2018

Ruling: Q1: Are you required to be registered for GST in relation to the construction and sale of a town house? | A1: Yes.

Relevant facts and circumstances: You submitted an application (which has been approved) to the local council to subdivide land into two lots and build two town houses on separate titles. You intend to live in unit one, after construction, as your primary residence and sell the other. You are not currently registered for GST. A registered builder will be engaged to build the Units and a real estate agent may eventually be engaged upon completion to sell one unit. You have not engaged the services of a surveyor. However, these services may be required in the future. The Infrastructures required to obtain the council planning permit included power, water, telephone and gas connections. Road access considerations were also part of the council planning permit. A storm water management plan formed part of the council planning permit. A landscape plan, a stormwater plan, street tree protection, parking and traffic management, infrastructure and road works conditions had to be satisfied to obtain the development approval.

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. | 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 Division 38. | A New Tax System (Goods and Services Tax) Act 1999 section 40-65. | A New Tax System (Goods and Services Tax) Act 1999 Division 75.

Reasons for decision: Summary: Based on the information provided, it is considered that the transaction is commercial in character as the number of activities undertaken goes beyond the minimal activities needed to simply subdivide and sell land. In addition, the development has enabled you to fund the construction of a new house for yourself and also provided sufficient profit to enable you to recoup the cost of financing the construction. All this indicate that the transaction is beyond that of a mere realisation of a capital asset and is in the form of an adventure or concern in the nature of trade. As such, your intentions and activities have the appearance of a business deal. They are an enterprise. It follows that your activities in relation to the land development and sale of the new house come within the definition of an enterprise for the purposes of GST under subsection 9-20(1) of the GST Act. Where your annual turnover meets the registration turnover threshold you will be required to be registered for GST. Currently the registration turnover threshold is $75,000. You may be able to apply the margin scheme to reduce your GST liability in terms of Division 75 of the GST Act. Information about the margin scheme is available on the Tax Office website at www.ato.gov.au.