Private ruling: GST and land subdivision activities
Date of advice: 12 December 2017
Published: May 2018

Ruling: Q1: Will the supplies of the subdivided lots be taxable supplies pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes. Where you meet the requirements of Division 75 you will be entitled to calculate the GST on your taxable supplies under the margin scheme.

Relevant facts and circumstances: Background You, (“the Landowners”), acquired an interest in a property before 1985. You are not individually registered for GST. You : ● Purchased land and developed two residential units through your Self-Managed Superannuation Fund approximately X years ago; ● Were directors of a company and when you retired from that position you transferred the shares in that company to your associate. That company subsequently began acting as trustee of a trust which conducts a building business. ● Operated as a Partnership returning rental income from two commercial premises you own and lease; and ● In the year 2000 you applied and received an ABN for the partnership. On ddmmyyyy you added a GST registration to the Partnership ABN and recorded the partnership as a ‘Residential Property Operator’. ● Details of the Land are set out below: ● You purchased a 50% freehold interest in a property located in Australia; ● The Land was acquired under a single title and the remaining 50% was owned by a family friend; ● You purchased the balance of the freehold interest in the Land from the family friend at a later point in time; ● The size of the property is X Acres and was acquired as vacant land; ● You initially acquired the Land jointly with the family friend as a hobby farm for personal use. No sale of any produce occurred; ● The Land has never been rented or used for primary production; ● You advised that you had no exit strategy when the Land was acquired; ● There is no mortgage over the land; ● The Land was originally zoned as Green Wedge Zone and rezoned to Urban Growth Zone by the Government. You were not required to consent to the rezoning; ● The Land was not near any Urban Growth Boundary when the 50% freehold interest was purchased or when the balance of the Land was purchased. ● In YYYY you built a residence on the Land and it became your principal place of residence; ● Due to your age and the fact that you are the primary carer for your relative, you have decided to sell the Land and move to another property. The new property is next door to another relative. You intend to live there so that you will be able to share the care of your relative; ● Your current residence located on the Land is to be demolished when your new residence is completed. Construction of your new residence has not yet commenced; ● All of the Land will be redeveloped; and ● You have never made any previous attempts to sell the Land. In 200X you were introduced to a property developer at a social event. The property developer approached your associate, at a social event and proposed the subdivision and development of your land into a residential precinct and the sale of the developed lots. In MMYYY you and the developer entered into a Development Management Agreement (DMA) and a Property Finance Agreement (PFA). When we refer to the developer we will be referring to the company in its role as either the Development Manager under the DMA or the Financier under the PFA depending on the context. You engaged Lawyers who undertook a review of the proposed DMA. They advised that your legal and beneficial ownership was not at risk and your financial position was safeguarded. You appointed your associate as your Representative (“Representative”) in the negotiations. Following these negotiations for the Development Management Agreement (“DMA”) you received an anonymous offer through a local real estate agent for the Land but you did not accept it due the fact that it was highly qualified, subject to further due diligence and lacked detail. You are aware that other landowners in the area had received similar offers but they fell through; The following summarised facts have been taken from your relevant plan correspondence: ● The proposal is to develop approximately XXX residential lots over eleven stages; ● The average lot size is XYZ square metres; ● The development will include roads, footpaths, utilities, reserves and parklands. No buildings will be constructed. A mobile land sale sales office will be transported and installed on site and removed when no longer required. There will also be ancillary on-site parking and advertising signage; ● There will be no commercial lots in this development; ● The Development Manager is self-funded primarily via private equity; ● The draft Project and Marketing Plan advised that gross sales revenue would be $XXX,XXX,XXX and total costs would be $XX,XXX,XXX ● The Lots will be sold off the plan and 100% of the lots in stage one will be sold off the plan prior to the commencement of the development. ● The draft sale contract for the sales to third party purchasers of the lots provides that any sales under this contract that are taxable supplies are GST inclusive and the parties agree that the supply is under the margin scheme. Such clauses are included as a precautionary measure in the event that GST applies to any sale, and is not an acknowledgment by the applicants that GST applies to the sale of any particular lot; ● Landscaping of the front yard was offered as part of the Contract of Sale of Stage 1 lots. A choice between three separate gardens is offered; ● The Development Manager will manage marketing and sales of the development and will appoint a licensed real estate agent; ● All correspondence between you and the Development manager occurs through your representative. The Landowner Representative and the Development Manager are required to meet monthly or as otherwise agreed. In fact, meetings have been held sporadically. Minutes provided reflect all meetings that have been held; ● You will remain the registered proprietor of the Land during the development; ● The Development Manager has no beneficial interest in the land; and ● There will be no land swaps under this development. However, the parklands and reserve will be subject to the relevant Government Infrastructure Scheme. A summary of the various meetings between government entities, the developer, you and your representative were provided:


Reasons for decision: Summary: Will the supplies of the subdivided lots be taxable supplies pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? You are currently not registered for GST as individuals but are registered for GST as a partnership. The Partnership owned two commercial properties which returned rental income. The Partners in their private capacity also acquired a property to use the land for hobby farm purposes and residential purposes. They did not use it in any form of enterprise after they acquired the property. Where we find that your subdivision activities are enterprise activities then the land that was previously a private asset will become an enterprise asset of the partnership that is already registered for GST. A partnership is an entity for the purposes of the GST Act and therefore where the subdivision activities are found to be an enterprise they will be activities of the Partnership and it will be the Partnership that will be making taxable supplies of the subdivided lots. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (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 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. For the supply of your sub-divided land to be a taxable supply, all of the requirements in section 9-5 must be satisfied and must not be GST free or input taxed. In your case you will be selling fully serviced vacant residential lots for consideration and the lots are connected with Australia as they are located in the indirect tax zone (Australia). Therefore, paragraphs 9-5(a) 9-5(c) and 9-5 (d) of the GST Act are satisfied. In addition the supply of the lots in your factual situation will neither be GST-free or input taxed. Accordingly, we must determine whether the sales of the lots are in the course or furtherance of an enterprise that the Partnership is carrying on. | Detailed Reasoning - Enterprise: The term ‘carrying on an enterprise’ is defined in the GST Act and includes doing anything in the course of the commencement or termination of the enterprise. Section 9-20 of the GST Act relevantly defines enterprise to include an activity, or series of activities, done: ● In the form of a business or ● In the form of an adventure or concern in the nature of trade. Relevantly an activity by individuals without a reasonable expectation of profit is exempted from being an enterprise. In your case the draft Project and Marketing Plan advised that gross sales revenue would be $XXX,XXX,XXX and total costs would be $XX,XXX,XXX. Therefore your activities are expected to be profitable activities and not excluded from the definition of enterprise. The ATO view on the meaning of the term ‘enterprise’ is explained in detail in Miscellaneous Taxation Ruling MT 2006/1 ‘The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number’ (MT 2006/1). MT 2006/1 at paragraph 154 provides: 154. For an entity that has to carry on an enterprise to be entitled to an ABN, it is necessary to identify one activity or a series of activities that amount to an enterprise. If an entity carries on a number of activities, only one of those activities need constitute an enterprise in order for the entity to be entitled to an ABN. However, not every activity or series of activities that an entity carries on would by themselves amount to an enterprise or be activities carried on by them in an enterprise. Some activities will be specifically excluded while others may not fall within the definition of enterprise. The issue is whether the property used in your hobby farm activities, has been changed to a revenue asset as a result of your decision to undertake development activities on your land and whether your subdivision activities are in the form of a business or an adventure or concern in the nature of trade, carried out in a business-like and commercial manner. Paragraph 234 of MT 2006/1 provides that ordinarily the term business would encompass trade engaged in, on a regular or continuous basis. An isolated or one off transaction may fall into the category of ‘an adventure or concern in the nature of trade’ where the activities being undertaken do not amount to a business but are commercial in nature and have the characteristics of a business deal. Paragraph 237 of MT 2006/1 provides that the term 'profit making undertaking or scheme' like the term 'an adventure or concern in the nature of trade' concerns transactions of a commercial nature which are entered into for profit-making, but are not part of the activities of an on-going business. Both terms require the features of a business deal.” Paragraph 260 of MT 2006/1 explains that assets can change their character from being capital/investment assets to being trading/revenue assets, or vice versa, but cannot have a dual character at the same time. There are number of cases and rulings that point to indicative factors that are relevant for consideration. ● Taxation Ruling TR 92/3 Income tax: whether profits on isolated transactions are income (TR 92/3) ● Statham & Anor v. Federal Commissioner of Taxation ; (89 ATC 4070); (20 ATR 228) (Statham) ● Casimaty v. FC of T ;; (1997) 151 ALR 242 (Casimaty) ● Federal Commissioner of Taxation v Whitfords Beach Pty Ltd (82 ATC 4031) (Whitfords Beach); ● McCorkell v. Federal Commissioner of Taxation - (28 July 1998) (28 July 1998) (McCorkell); ● FCT v The Myer Emporium Ltd (1987) 61 ALJR 270 (Myer) In determining whether activities are in the form of a business or in the form of an adventure or concern in the nature of trade, rather than a mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each particular case. 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.” Gibbs CJ in Whitfords Beach says in his opening statement: A profit made on the sale of an asset may be treated as assessable income within the Income Tax Assessment Act 1936 (Cth.) as amended (``the Act'') for one of a number of reasons. In the first place, if the profit should be regarded as income in accordance with the ordinary usages and concepts of mankind, it will be assessable income within sec. 25(1) of the Act. When the owner of an investment chooses to realize it, and obtains a greater price for it than he paid to acquire it, the enhanced price will not be income within ordinary usages and concepts, unless, to use the words of the Lord Justice Clerk in Californian Copper Syndicate v. Harris (1904) 5 Tax Cas. 159, at p. 166, that have so frequently been quoted, ``what is done is not merely a realisation or change of investment, but an act done in what is truly the carrying on, or carrying out, of a business''. Paragraph 31 of GSTR 2001/7 provides commentary on what is meant by ‘capital assets’. It refers to those assets that make up the ‘profit yielding structure’, as opposed to trading assets (revenue assets) that are turned over and bought and sold in the course of trading operations. The following factors are considered important in determining whether your development activities conducted on your property, previously used for private purposes, are in the form of a business or in the form of an adventure or concern in the nature of trade and therefore an enterprise for GST purposes. ● Has there been a change in purpose of the land. ● What is your level of involvement ● Size and scale and the level of pre-planning and development activity is to be undertaken on the land including the activity necessary to meet Council requirements ● Are the activities systematic, organised and carried on in a business-like and commercial manner, and ● Profitability and your level of Risk. | Detailed Reasoning - 1 Has there been a change in use or purpose of the land: In the decision in Federal Commissioner of Taxation v Whitfords Beach Pty Ltd 82 ATC 4031; (1982) 150 CLR 355 (Whitford’s Beach - High Court) , considered that in the operation of a business, it is relevant to take into account the purpose with which the taxpayer acted and, since the taxpayer was a company, the purposes of those who control it are its purposes. Therefore, in that case, when the shares in the taxpayer were purchased by three development companies, it transformed the company which held land for the domestic purposes of its shareholders to a company whose purpose was to engage in a commercial venture with a view to profit. In addition to taking other factors into consideration, including the scale and magnitude of the subdivision, it was concluded that the taxpayer’s activities involved more than a mere realisation of an asset. It follows from the decision in Whitford’s Beach - High Court case that a taxpayer, such as yourself, who originally acquired property for private purposes, could subsequently embark on a profit making scheme with that same piece of land. The basic distinction between a development and sale of land as part of a business, or alternatively, a ‘profit making’ undertaking or scheme is that the latter will generally be a one-off event and not carried out in an overly organised or systematic manner. However, the overriding purpose and intention of the person entering into the venture must be to make a profit. You acquired the property prior to the start of GST. You initially acquired the Land jointly with a family friend as a hobby farm for personal use.. No sale of any produce occurred and it was not used in any enterprise. Therefore you have held the property for a long period of time prior to the start of this development activity. The Land was originally zoned as Green Wedge Zone and rezoned to Urban Growth Zone by the Government. You were not required to consent to the rezoning and you did not have any active participation in the process. It is acknowledged that Councils do rezone land without application, and this did occur when the land was rezoned from ‘Green Wedge’ to Urban Growth zone. Your land was acquired for a particular use (main residence/hobby farm), and that use did not materially change as a result of that rezoning. Rezoning of your land by itself, without the other factors present in your situation, might indicate the mere realisation of a capital asset. In YYYY you began informal discussions with a property developer, and more recently after a gap of some seven or more years your representative was approached by the same developer who proposed that your land be subdivided into a residential precinct. These discussions developed and you entered into a contract for financing the development and a contract for managing the development. You appointed your representative as your agent in these arrangements and you and or your representative involved yourself in the development as recorded in the minutes of the Project control group of which you were a part. When you entered into discussions directly with the development manager and began planning for the development and marketing of the property, we consider there was a change in purpose for which the land was held from private to enterprise like activities. You have entered into and signed key documents, namely finance, development and marketing agreements that relate to the entire area of your property. Your residence is to be demolished and your property is no longer suitable for use as a residence/hobby farm lifestyle. All of your land will be used for the purpose of subdivision. The subdivision will be completed in 11 stages over X years. The development proceeds are anticipated to exceed $XM. 100% of pre-sales of stage 1 will be completed prior to the commencement of development works. This means that the whole of the land has been committed to the development with a view to profit. It is our view that the purpose for which your property was initially acquired has changed from private in nature and the whole of your property is being applied in an enterprise of broad-acre subdivision development. The length of time the property was owned is less significant when considering whether there is an enterprise as the purpose for which the land was held has changed when acquired prior to 1985. This change occurred when you began engaging a professional and a representative to ensure the development went according to your interests. The profitability and complexity of the arrangements lead us to find that the activities are undertaken in the form of a business. | Detailed Reasoning - 2 What is your level of involvement?: The form and substance of the agreements support the conclusion that you are involved in the subdivision and property development business directly or through your Representative. Your level of involvement can be compared in some aspects to Jenkinson J of the Federal Court in Stevenson v FC of T (91 ATC 4477) who quoted from the AAT decision. He says at paragraph 31: As to the taxpayer's personal involvement with the subdivision of the land, he was the sole decision-maker in respect of all matters of consequence in relation to it; he obtained professional advice but, except for the submission of the original planning application early in 1975, he chose for himself and directed the course of action to be followed. Thus at all times he fixed the price to be asked for the land. He sought and obtained finance and subsequently, having been refused further finance by that lender, he personally sought and obtained it from another source. He controlled the marketing of blocks after subdivision; he dealt personally with many prospective purchasers when they came to inspect the land.” You have entered into a fee for service contract with the developer and in accordance with the PFA, the Financier and Landowner must establish a Project Control Group. The Project Control Group is involved in making decisions, declarations, approvals and agreements in respect of the Project. Members of the Project Control Group must consist of your Representative and the director of the Financier company. Each member may appoint a further representative each, if they wish. You have provided Minutes of three monthly meetings conducted. In accordance with clause X of the PFA, all decisions, declarations, determinations, approvals and agreements of the Project Control Group must be unanimous. The Minutes of Project Update Meetings provided indicate that you and/or your Representative attended various meetings regarding the carrying out and planning for the Project. ● For instance, in mmyyy, your Representative approved preliminary budgets. ● In mmyyyy, the Landowners were presented with the final concept plan and their Representative was requested to review it and provide comment. The Landowners agreed to sign a Power of Attorney to allow the contracts and transfers of land to be signed by the Development Manager’s Representative. Pricing of lots were to be agreed by the Landowners. ● In the mmyyyy meeting minutes, your Representative was updated of the progress of the Project from planning through to sales and marketing. Your Representative also approved the release strategy of retaining seven lots. The DMA details the development and management services to be provided by the Development Manager. It is clear from this clause that the Project Feasibility, Project Plan and Services provided by the Development Manager are all subject to consideration and agreement with the Landowners. Clause X and Y outline the limitations on authority in that the Landowner’s consent must be obtained for excessive Development Costs and appointment of consultants, contractors and subcontractors pursuant to the provision of Services by the Development Manager. Clause X of the DMA also states that all actions of the Development Manager are made on the Landowner’s behalf. This would include engagement of consultants, contractors, lodgement of applications for planning approvals, council permits and environmental approvals. Conducting the business through a Development Manager/Financier does not preclude you from also carrying on a business. Appointing the Developer to manage the Project does not alter the fact that you, or you through your Representative, are actively involved in all major decisions of the Project. This is evident from the minutes of the Project Control Group and the clauses within the PFA and DMA, especially clauses 3, 5 and 6.2 of the DMA and the Recitals and clause 5 of the PFA. The clauses in the PFA and DMA indicate that decisions in regard to the Project are made by both the Development Manager and your Representative. Also, all major decisions on expenditure, stages, other major decisions of the Project, must be approved by you, the Landowners. Therefore, it is our view that you and your Representative do not have a passive role in this Project. You have both made important decisions in this subdivision and development business. | Detailed Reasoning - 3 The size and scale and level of pre-planning and development activity of the land including that required to meet Council requirements: This development you are planning is not considered to be small or simple. This development, initiated by you, is a large development of XXX serviced residential lots with roads, utility infrastructure and landscaping. This development is planned such that it is rolled out in X stages over a continuous X year period In the lead up to the subdivision process you engaged a professional to effect the subdivision. The process for engaging the Developer and Financier who are one and the same entity is described as a fee for service. The phrase used in the court cases of ‘undertaking only the development of the land required to secure council approval for the subdivision’ must be taken in the context of: ● The level of activity in the relevant development ● The commerciality of the project and ● Complexity of the work required to be completed for the subdivision to take place and not simply the fact that you complied with what council required to be done. In your case: ● You engaged a professional developer to see the process through and to ensure it was undertaken in a professional manner. ● There were extensive discussions and pre planning between yourself and the Developer. ● You supplied minutes of meetings which demonstrate the planning that went into the proposal and the level of your involvement in those activities. ● Although buildings will not be erected on site there will be a mobile land sale sales office installed and on-site parking and advertising signage. ● There will be ● landscaping, ● development of services and utility infrastructure, ● roads, ● footpaths, and ● parklands and ● you set up an off the plan sale process to ensure funding was approved and finance could be secured. The level of activity undertaken on your property is an end to end process and is well planned and extensive at the preparatory, development works and marketing stages. The level of development in your case is to be contrasted with the minimal development undertaken in Statham and Casimaty where it was said: | Detailed Reasoning - Statham: a. the owners were at first content to simply sell the land as one parcel, but were unable to do so b. they then were required only to do limited clearing and earthworks c. no moneys were borrowed by them, although a guarantee was provided to the Kingaroy Shire Council by way of bank guarantee and d. the owners relied upon the Kingaroy Shire Council to itself carry out road works, kerbing, electricity and sewerage works which were required to be done | Detailed Reasoning - Casimaty: …The applicant deposes that the only works carried out to prepare the land for sale were the construction of an internal road, Opus Drive; the provision of water services, farm fencing all boundaries and the extension of the water main from Seven Mile Beach Road to the area of the subdivision. Ryan J continued in Casimaty that in his view, the approach which has been taken to the question of fact raised by cases of this kind has been illuminated by the following passage at 330 from the dissenting judgement of Dean J in Whitfords Beach 79 ATC 4648 (1970) 44 FLR 312 which was approved on appeal by the Full High Court (82 ATC 4031; 150 CLR 355). `The determination of the question whether the proceeds of sale of an asset should properly be seen as representing profits made in the ordinary course of what is in truth a business will not infrequently require precise definition both of the relevant business and of those activities which are comprehended within its ordinary course. The borderline case will commonly be a case which involves a mixture of facts and events both within and outside the ordinary course of the particular business. In such a case, the question whether any part of the proceeds of the particular sale should properly be seen as representing profits made within the ordinary course of the particular business will involve evaluation of competing factual considerations for which no rigid guidelines can be laid down. A receipt can constitute the proceeds of sale of an item sold in the course of a business of the vendor and yet be capital. A receipt can be the proceeds of sale of something acquired quite out of the ordinary course of a business and yet, in whole or in part, be income as representing gross profits made in the ordinary course of that business. Thus a goldsmith who sells in his shop his patrimony of a single gold bar does not necessarily receive the proceeds of sale as income merely because he takes advantage of his shop to sell his capital asset more advantageously. On the other hand, the master goldsmith who labours to turn such a gold bar into finely wrought brooches which he displays and sells with his other gold wares, could not be said to receive the whole of the proceeds of sale of those particular brooches as capital merely because the gold from which they had been fashioned had not been acquired by him for the purposes of his business but had been received as a gift from his father. The project builder who acquires a parcel of land as a capital asset and sells it unimproved will not necessarily receive the proceeds of sale as income merely because he uses the selling facilities of his business to sell that single parcel of land. On the other hand, if he subdivides the land into a dozen blocks upon each of which he erects a residence, the profit resulting from the proceeds of sale of the improved lots (after making allowance for the value of the land) will be profit made in the ordinary course of his business as a project builder notwithstanding that the land was acquired as a capital asset for some quite different purpose. Where a person who carries on a business sells an asset which had been held as a capital asset, one must, in each case, ask the question whether the asset was devoted to the particular business to such an extent that it can properly be said that the proceeds of sales represent profits made in the ordinary course of that business. In a case where the asset has been divided and the divided parts improved in the course of a business of dividing and improving such assets, it would be rare that one could say that the profits from sale of the individual improved items (after making allowance for the value of the original asset) represented part of the proceeds of mere realization of a capital asset as distinct from profits made in the ordinary course of that business. Where the activities of dividing and improving are of sufficient scale and scope, the fact that no prior independent business existed will not prevent those activities themselves constituting a business of which the profits arising on sale are the ordinary proceeds.'' There was no requirement for landscaping, lighting or provision of public space in Statham and Casimaty and the development was minimal however in your case there has been extensive planning and there will be extensive works to bring the project to fruition. Further, in Casimaty the purpose for which the property was acquired did not change. The property continued to be held as a residence and for the conduct of business as a primary producer. As discussed at point 1 on page 3 of our reasons, we consider the purpose for which the land is used has changed. We consider that this criteria for an enterprise is met as the level of planning you have undertaken, including the work required to meet council requirements is extensive and your involvement in this process is integral to approving the various steps of the development process. | Detailed Reasoning - 4 Are the activities systematic, organised and carried on in a business-like and commercial manner?: As evidenced in the facts and circumstances and the documentation supplied, your plan for development, subdivision and sale is coherent and is undertaken in a business-like and commercial manner. Your activities are not simple or piecemeal. You have entered into agreements and contracts that detail the actions to be taken in relation to planning, funding, development, marketing, and profitability. An example to illustrate the degree of organisation and commerciality of this project is when you agreed to marketing research to be undertaken where similar local developments were analysed, and consequently your project has been placed to attract the right interest at the right time. The activities are systematic as evidenced by the planning timelines spanning more than a decade and the minutes which record multiple consultations and approvals occurring to ensure the Project was undertaken in a systematic way. Your activities in relation to funding and pre-sales, demonstrates a level of sophistication and complexity beyond that of a simple subdivision of vacant land. We consider that the activities you are undertaking effect this large scale subdivision is being carried out on a commercial scale such that they are being undertaken in the form of a business. | Detailed Reasoning - 5. Profitability and your level of Risk: As set out in the draft Project and Marketing Plan the gross sales revenue is expected to be $XXX,XXX,XXX and total costs would be $XX,XXX,XXX. We consider this property subdivision will be a profitable activity based on these projections. Generally the greater the level of financial risk assumed by the landowner in respect of the development of their land, the more likely that the landowner is carrying on a business or is engaged in a profit making undertaking. You have argued that the financial risk is borne by the development manager/financier. However, ultimately the risk is borne by you, the Landowners. Whilst you have engaged the Financier/Development Manager to undertake the X Project, such an engagement may in some cases limit your direct involvement in the Project, however in your case the Financier/Development Manager will incur little risk because the ultimate costs of the Project and subdivision will be your burden, as the Landowners. The Landowner and the Financier have entered into the PFA in order to allow the Financier to make funds available to the Landowner for the purpose of undertaking the Project. Therefore, the Financier has agreed to provide the finance to fund the Project Costs associated with Stage 1 in return for a payment of a Finance Fee and a reimbursement of the Project Costs. The Finance Fee is an agreed amount and you are “at risk” as a result regardless of the success or failure of the Project, the amount of the Finance Fee is payable by the Landowner. You ultimately bear the financial risk and the Project Costs are reimbursed to the Financier from the sale proceeds before payment of any Proceeds to the Landowners. The Landowner agrees in the PFA to charge their interest in the Property in favour of the Financier to secure payment of the Project Costs associated with Stage 1 and the Financier is entitled to lodge a caveat to secure their interest as chargee. The certificate of title of the Land is also held in a solicitor’s Trust. This demonstrates that you may be exposed to risk if you don’t repay the money provided by the Financier to finance the Project Costs. You are also “at risk” as a result of entering into the DMA. Under the DMA in regard to Termination of the DMA, the Landowners must pay to the Development Manager all Development Management Fees and other monies which remain unpaid after termination. Termination may occur by written agreement of the parties, on practical completion or by default of either party. You are also required to take out public liability insurance covering the Land, the Project, the Development Manager, its employees, agents and consultants, contractors and subcontractors engaged in the Development Works as per the DMA. Under these clauses, you are exposed to potential losses from the development sales and will only receive any balance of sales proceeds after all costs are recovered by the Financier/Development Manager. You clearly have a view to profit from this undertaking and your property will be placed ‘at risk’ when undertaking the Project. | Detailed Reasoning - Conclusion: We have reviewed your development in the light of the factors considered important by the Commissioner. Relevantly we have considered in detail the following factors set out above; ● Has there been a change in purpose of the land. ● What is your level of involvement. ● Size and scale and the level of pre-planning and development activity is to be undertaken on the land including the activity necessary to meet Council requirements. ● Are the activities systematic, organised and carried on in a business-like and commercial manner, and ● Profitability and your level of Risk. Based on a consideration of all relevant factors we consider that your activities amount to more than ‘mere realisation’ of a capital asset, and constitute the carrying on of an enterprise of land development in the form of a business. As the supplies of the lots are in the course of a property development enterprise and you are registered and required to be registered for GST the supply of the lots will be taxable supplies pursuant to section 9-5 of the GST Act. Where you meet the requirements of Division 75 you will be entitled to calculate the GST on your taxable supplies under the margin scheme.

Reasons for Decision: In this reasoning, unless otherwise stated, | ● all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) | ● all reference materials referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au | ● all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act