Private ruling: GST and sale of land
Published: July 2014

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

Relevant facts and circumstances: • You acquired a rural property prior to September 1985. • You married decades ago. After your marriage, you continued to hold the property in your own name. Considering the fact that the property is a pre-CGT asset, you were aware that it was beneficial to maintain the pre-CGT status of the property. You were also conscious of the fact that your spouse did not have any legal rights in relation to the property that was used as your main residence. • Accordingly, on or about Date A, you transferred the bare legal interest of the property to yourself and your spouse as joint owners with the beneficial ownership of the property continuing to be in your name only. The transfer was made with the express intention that the beneficial ownership would not change and the property remains a pre-CGT asset. • The purpose of the legal transfer was to give your spouse the assurance that they would be made aware of any dealings with the property as they would be required to sign any dealings in respect of the property. • The property is on a single title and zoned rural. • Improvements on the property include a dwelling, which you and your spouse occupy as your main residence. The property is not used for any other purpose. • You are not registered for goods and services tax (GST). Proposal for subdivision You have been approached by a purchaser, who proposed the following: • The purchaser will enter into a contract for sale of land (contract) to purchase the property from you. The purchaser will acquire other land adjacent to your property from other vendors. • There are special conditions relating to this contract. In particular, the contract is subject to the purchaser obtaining the registration of a plan of subdivision over the property. • As you intend to continue to reside on the property, the contract will specify that a portion of the property will be carved out for you. It is done by way of reserving a portion of the property (carve-out land) from the contract. • The purchaser is also required to transfer to you their interest in certain adjoining land. The purpose of this transfer is to allow for the consolidation of this small parcel of land together with the carve-out land to form a new lot. The consolidation is consistent with the overall subdivision of all the land that is being acquired by the purchaser. Your new lot will include your existing dwelling. • Under the terms of the contract, the purchaser is responsible for carrying out the necessary works for subdivision of the property. • The purchaser is also responsible for all sales and marketing associated with the sale of the subdivided lots on the property apart from your lot. • You intend to continue to live in the dwelling located on your lot as your main residence.

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 23-5 Reasons for the decision | Taxable supply | Section 9-5 of the GST Act provides that: | 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. | You will make a supply of a part of your property to the purchaser for consideration and the supply is connected with Australia as the property is located in Australia. Therefore, you will satisfy paragraphs 9-5(a) and (c) of the GST Act. You will retain your residence in the carve-out land and in the process you will be supplying bare land to the purchaser. The supply of bare land is neither GST-free nor input taxed. | Accordingly, in order to determine whether your proposed sale of land will be a taxable supply, it is necessary to determine whether the supply will be made in the course of furtherance of an enterprise that you carry on and whether you will be required to be registered for GST. | Carrying on an enterprise | Subsection 9-20(1) of the GST Act defines what constitutes an enterprise for the purposes of the GST Act. Paragraph 9-20(1)(b) of the GST Act provides that amongst other things, an enterprise is an activity or series of activities done in the form of an adventure or concern in the nature of trade. | Your proposed sale of a part of your property to the purchaser will be a once off sale or an isolated transaction of sale of property. It is necessary to determine whether your isolated transaction could be treated as an enterprise carried on in the form of an adventure or concern in the nature of trade. | Miscellaneous Taxation Ruling MT 2006/1 (MT 2006/1) refers to the meaning of an entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (ABN). | Goods and Services Tax Determination GSTD 2006/6 (GSTD 2006/6) confirms that the principles in MT 2006/1 apply equally to the term enterprise for GST purposes. | Paragraphs 262 to 302 of MT 2006/1 deal with isolated transactions and sales of real property. The ruling provides that often the question of whether an entity is carrying on an enterprise arises where there is a one-off activity or isolated real property transaction. The issue to be decided in such cases is whether the one-off activity is of a revenue nature (an enterprise) or a mere realisation of a capital asset. | Paragraph 265 of MT 2006/1 provides guidance for determining whether activities involving the sale of real estate are a business or an adventure or concern in the nature of trade as opposed to a mere realisation of a capital asset. It states: | 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. | MT 2006/1 also provides that in determining whether activities relating to an isolated transaction are an enterprise or are the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of the particular case. In addition to the factors outlined above, there may be other relevant factors that need to be considered in 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. | A trading asset is generally dealt with or traded within a short time after acquisition. However, assets purchased with the intention of holding them for a reasonable period of time, to be held as income producing assets or to be held for the pleasure or enjoyment of the person, are more likely not purchased for trading purposes. | Paragraph 259 of MT 2006/1 provides that examples of investment assets are rental properties, business plant and machinery, the family home, family cars and other private assets. The mere disposal of investment assets does not amount to trade. | It is important to note that the nature of an asset can change from being a private or capital asset to that of trade and vice versa. Where a property that was not acquired for resale at a profit later becomes the subject of subdivision, it is necessary to consider if the activities have a commercial flavour and whether the nature of the asset changes to one of trade. | You acquired the rural property and have used it solely for residential purposes. | You informed that under the terms of the contract, the purchaser is responsible for making the necessary inquiries with the council and carrying out the necessary works for the purpose of subdivision of the property. The purchaser is also responsible for all sales and marketing associated with the sale of the subdivided lots on the property apart from your lot. | We consider that you are not carrying on a property development enterprise as you do not seem to be engaged in developing properties on a regular or continuous basis and the purchaser is the entity responsible for the subdivision and marketing of the land. | After taking into account the circumstances of your case and the events which actually occurred, we consider that the reconfiguration and supply of part of your land does not amount to you carrying on an enterprise or a series of activities in the form of an adventure or concern in the nature of trade. | The reconfiguration and supply of part of your land is a mere realisation of a capital asset. | Therefore, your supply of land will not be made in the course or furtherance of an enterprise that you carry on. Accordingly, paragraph 9-5(b) of the GST Act will not be satisfied. Registration for GST | Section 23-5 of the GST Act provides that you are required to be registered for GST if you carry on an enterprise and your GST turnover meets the registration turnover threshold. | You are not currently registered for GST. As you will not carry on an enterprise if you sell a part of your property to the purchaser, you will not be required to be registered. Therefore, paragraph 9-5(d) of the GST Act will not be satisfied. Conclusion | Accordingly, if you sell a part of your property to the purchaser, it will not be a taxable supply of property. It will simply be a mere realisation of a capital asset and will not be subject to GST.