Private ruling: GST and Subdivision
Date of advice: 5 September 2018
Published: October 2018

Ruling: Q1: Will the sale of the subdivided blocks allocated in Australia be a taxable supply pursuant to section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 ? | A1: No

Relevant facts and circumstances: You, purchased your family residence in YYYY. The property consisted of a main residence and undeveloped land totalling approximately X square metres. You have only ever used it for private purposes as your principle place of residence. You are advanced in years and have significant health issues. You knew a developer and due to your health issues you decided you needed to downsize your block and felt comfortable with asking him to do the development for you. You have never been involved in any property development yourselves or through any other related entity. You began the project in MMYYYY and entered into a contract with the property developer to subdivide your property into X lots and sell off all except one of those lots. Each of those new lots would be around X square metres each and would be sold as residential land. Subdivision approval has been provided by the local council. Your principle place of residence was located on the remaining block. You have funded the development by borrowing against your property. You registered for GST initially because you thought the subdivision activity was an enterprise and you claimed GST credits on construction costs. You supplied a copy of the development contract with your application. You have remained residing in your house during the development and will continue to reside in the residence following the development. Sales of the lots are expected in the next 6 to 12 months.

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 9-20 | A New Tax System (Goods and Services Tax) Act 1999 Section 25-50

Reasons for decision: Summary: ● 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 Section 9-5 provides that you make a taxable supply if: ● you make the supply for consideration ● the supply is made in the course or furtherance of an enterprise that you carry on ● the supply is connected with the indirect tax zone (Australia), and ● 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. Any supplies of the subdivided lots made under the arrangement as outlined in the facts and circumstances will not be GST-free or input taxed. In addition the supplies are connected with Australia and consideration will be paid for the subdivided lots. Therefore we will need to determine: ● whether the supply of the vacant lots is in the course of any enterprise and ● whether you are entitled to be registered for GST. | Detailed Reasoning - Enterprise: Section 9-20 provides that the term ‘enterprise’ includes, among other things, 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. The phrase ‘carry on’ in the context of an enterprise includes doing anything in the course of the commencement or termination of the enterprise. Paragraph 94 of 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 . 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 provides guidance on what activities will amount to an enterprise. Paragraph 234 of MT 2006/1 distinguishes between activities done in the form of a ‘business’ and those done in the form of ‘an adventure or concern in the nature of trade’. In particular: ● A business encompasses trade engaged in on a regular or continuous basis. ● An adventure or concern in the nature of trade may be an isolated or one-off transaction that does not amount to a business, but which has the characteristics of a business deal. We do not consider your activities are in the form of a business and will consider whether they are done in the form of an adventure or concern in the nature of trade. Paragraphs 178, 252 and 265 of MT 2006/1 set out a number of factors that can be looked at to determine whether a particular set of activities amounts to an enterprise. We have reviewed your circumstances and have taken into consideration the following factors: ● In YYYY you purchased the Property for the purpose of living on it and you have used the surrounding land for private purposes up until the present time ● You have held the land for a long time as your primary residence and not used for any income producing purposes ● You did not actively seek to sell the land ● Health issues combined with your age have forced you to consider downsizing your property ● The development is small in scale ● You have not been involved in any previous property development in your own capacity or through related entities, and ● You sought a friend who was a developer to help you develop your property. After considering all the facts and circumstances we consider that your activities amount to a ‘mere realisation’ of a capital asset, and do not constitute the carrying on of an enterprise. Your circumstances display characteristics similar to example 33 contained in MT 2006/1. Example 33 291. Ursula and Gerald live on a 2.5 hectare lot that they have owned for 30 years. 292. They decide to sell part of the land and apply to subdivide the land into two 1.25 hectare lots. The survey and subdivision are approved. They retain the subdivided lot containing their house and the other is sold. 293. Ursula and Gerald are not carrying on an enterprise and are not entitled to an ABN in respect of the subdivision as the subdivision and sale are a way of disposing of some of the land on which their home is situated. It is the mere realisation of a capital asset. As we consider your venture is not an enterprise, the supply of vacant lots will not be taxable supplies as you do not meet the criteria for 9-5. You are not entitled to an Australian Business Number (ABN) nor can you be registered for GST in relation to this activity. | Detailed Reasoning - Additional information: As per section 25-50 you are required to cancel your GST registration backdated to the start of its registration and you are not entitled to claim GST credits and will be required to refund them.