Private ruling: GST and sale of property
Date of advice: 7 December 2018
Published: March 2019

Ruling: Q1: Is the sale of a newly subdivided lot of real property by a Trust subject to GST? | A1: No, the sale of a newly subdivided lot of real property by the Trust is not subject to GST.

Relevant facts and circumstances: Some individuals intended to set up a trust to buy a property, subdivide it into a number of lots, build a house in each newly subdivided lots to initially rent them out and then later use the houses as their principal places of residence. With this intention, the individuals verbally agreed to buy the property located at a particular address and signed the purchase contract as the individuals being the purchasers. Later the Trust was formally set up with the individuals as trustees. After the Trust was formed, the purchase contract was amended to reflect the Trust as the purchaser. The supply of the property to the Trust was not a taxable supply and therefore no GST was included in the sale price. A corporate Trustee was set up due to some financial reasons. The corporate Trustee has only been set up for the purpose of acting as the Trustee of the Trust and does not in capacity act as Trustee of any other Trust. No entity has claimed any input tax credits in relation to any of the activities in relation to the development of the property. The corporate Trustee (as Trustee for the Trust) rented out the property for several months until the subdivision process was underway. The existing house on the property was removed for the approval process of the subdivision to take place. The subdivision of the property into two lots has been approved. The Trust’s intention of building residences for the purpose of renting out has never changed. However, due to no lender providing financial assistance to build the residences; the Trust has decided to sell one of the newly created lots. The Trust’s current intention is to keep one of the newly created lots and build a residence on it with the intention of renting it out. However, if faced with financial difficulties, it is the intention of the Trust to sell the other property as well. Trust is not registered for GST. The Trust does not carry on any other enterprise.

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

Reasons for decision: Summary: GST is payable on taxable supplies. A taxable supply is defined in section 9-5 of the A New Tax System (Goods and Services Tax) 1999 as follows: 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 the indirect tax zone ; 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 . (terms marked with asterisks (*) are defined in section 195-1 of the GST Act). The Trust is currently not registered for GST and therefore the question that needs to be addressed in this case is whether the Trust will be required to be registered for GST due to the sale of the vacant block of land and therefore will be meeting paragraph 9-5(d) of the GST Act. It is our view, given that the intention of buying this property has always been to build a residential premises for the purpose of renting it out and the only reason why the Trust will be selling it is due to financial hardship, the enterprise that the Trust has been carrying on at the time of sale is that of a rental enterprise. Accordingly, the vacant block of land can be considered as a capital asset of this rental enterprise. Pursuant to section 188-25 of the GST Act, supplies of capital assets are disregarded from the calculation of the projected annual turnover of an entity. Given that the Trusts’ projected annual turnover will be less than the registration turnover threshold of $75,000, the Trust will not be required to be registered for GST. The Trust does not have any other income. Accordingly, this means that at the time of selling this the vacant block of land, the Trust does not meet one of the requirements of the definition of a taxable supply (which is paragraph 9-5(d) of the GST Act). Therefore, the sale of the vacant block of land will not be taxable supply and thus is not subject to GST. | Detailed Reasoning - Additional Information:: An amount for GST is not required to be withheld under section 14-250 of Schedule 1 to the Taxation Administration Act 1953 (TAA) as the sale of the property is not subject to GST. However the Trust (as the seller) does have a notification obligation to make to the purchaser. Please read the publication that we have enclosed (‘ GST at settlement - a guide for suppliers and their representatives’ ) for further information.