Private ruling: Goods and services tax (GST) and property
Date of advice: 12 January 2016
Published: March 2016

Ruling: Q1: Is the supply of subdivided land at specified address a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No. The supply of the subdivided land at specified address is not a taxable supply under section 9-5 of the GST Act. The supply is not made in the course or furtherance of an enterprise carried on either by B or C.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. - B and C collectively own two parcels of land and are looking to maximise their return from the sale of the land. - The land is described by two, Certificate of Titles, as summarised below located in the specified address. - "Western Parcel" • The Western Parcel has been held within the family. • B inherited the land. • B has not undertaken any other property development of a similar nature to the one proposed. • The land has previously been used for primary production purposes. • The land is currently vacant and no business activity has been undertaken by the current landowner for the past few years. • The land has been zoned as residential for at least the past 25 years. • B submitted a development application purely to enhance the value of the land. - "Eastern Parcel" • The Eastern parcel has been held within the family. • The property was transferred to C. • The land was continuously used for specified purposes. • C has not collectively undertaken any other property development of a similar nature to the one proposed. • The land is currently vacant and no business activity has been undertaken by C for the past few years. • The land has been zoned as residential for at least the past 25 years. • C submitted a development application purely to enhance the value of the land. - The subdivision: • The landowners of the Western and Eastern parcels are distantly related. • The surrounding land has recently been redeveloped. • A developer has approached the landowners with a proposal to allow the developer to undertake the subdivision, which is intended to maximize the financial return to the family from the sale of the land. • The contractual obligations between the developer and the family are set out in the draft Development Agreement you sent us. The draft Development Agreement is not materially different to the final Development Agreement. • After looking at alternative ways of disposal of the land, including an outright sale, the proposal put forward by the developer is likely to provide the greatest consideration upon the sale of the land. • The subdivided allotments will be sold as vacant land without any involvement by the family in conducting any development works because this is the best means to realize the asset. If subdivided allotments are to be offered then infrastructure works including roads, water, electricity, sewerage and telecommunication connections are necessary to offer the land due to council guidelines which are required purely to enhance the value of the land. The level of development of the land is not beyond that necessary to secure council approval of the subdivision. The objective is to sell vacant lots of subdivided land. • A development agreement has been negotiated by the family and the developer. At the time of submitting this application the latest development agreement is sufficiently close to final. • The developer is not associated with the family and is dealing at arms-length with the family. • The developer and the family are looking to enter into an agreement with the terms detailed below. • It is proposed to subdivide the total land into approximately specified number lots. • The family will remain the registered owner of the land during the development. • The developer will carry all development works and associated risk at its own cost. • The developer amongst other things will be responsible for the following at its own cost and risk: • The development of the land • Undertaking all the development works • Creation of the allotments, and • The marketing, promotion and sale of the allotments. • The developer must complete the development within a specified time frame. The developer must purchase any unsold allotments at the end of the timeframe. • The family will provide a power of attorney appointing the developer to sign and accept contracts for the sale of any part or parts of the land. • The arrangement will not constitute a joint venture or tax law partnership. • The developer will derive a development fee based on a percentage of the allotment proceeds. The developer will raise a tax invoice for the development fee as each allotment is sold. The family will be guaranteed their share of proceeds during or at the end of the development. • Income and expenses: • The expenses have been split between the two families. For C, the expenses have so far been paid from personal funds. For B, the expenses have been paid from their joint bank account. • The loan from the developer will be paid in two cheques. One cheque will be made to the B. The other cheque will be made to the C. • Upon sale of the land the developer will issue the landowners with a tax invoice for their development fee which is likely to be paid from the sale proceeds. The remaining net proceeds from the sale of the land will be split into two, one for each family. B has a joint family bank account. C is in the process of setting one up. The landowners will request that the conveyancer draw 2 cheques (ie one for each family).

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5