Private ruling: GST and sale of vacant land
Date of advice: 29 January 2016
Published: March 2016

Ruling: Q1: Will the proposed sale of vacant land be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No, the proposed sale of vacant land will not be a taxable supply under section 9-5 of the GST Act.

Relevant facts and circumstances: • Taxpayers inherited XX acres of land. • The property was originally purchased by the taxpayers' parent before 1 July 2000. • The taxpayers are not registered or required to be registered for goods and services tax (GST). • The taxpayers intend to sell Y acres of land to interested buyers that do not contain any buildings. • The remaining land contains taxpayers' residence. • The taxpayers have confirmed the following: 1) There was no change of purpose for which the land was held. 2) There was no additional land acquired to be added to the original parcel of land. 3) The property was not brought into account as a business asset. 4) There was no coherent plan for subdivision of the total property as the taxpayers were disposing surplus land adjacent to the main residence. 5) There was no business organisation such as a manager, office and letterheads etc. 6) Borrowed funds were not used to finance the subdivision. 7) Interest on borrowed money to defray subdivisional costs was not claimed as a business expense. 8) The property was not developed beyond that was necessary to secure council approval for subdivision. 9) No buildings were erected on the Y acres of land prior to sale.

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

Reasons for decision: Summary: You are liable to remit GST on any taxable supplies you make. The term taxable supply is defined in section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). You make a taxable supply if you make the supply for consideration; and the supply is made in the course or furtherance of an enterprise that you carry on; and the supply is connected with 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. The supply of Y acres of vacant land is not GST-free or input taxed under any provision of the GST Act. You will make the supply of Y acres of land for consideration and the supply is connected with Australia as the land is located in Australia. However, it is necessary to ascertain whether your supply will be made in the course or furtherance of an enterprise that you carry on and whether you will be required to be registered for GST. | Detailed Reasoning - Carrying on an enterprise: Enterprise is defined in subsection 9-20(1) of the GST Act, which states: An enterprise is an activity, or series of activities, done: (a) in the form of a business; or (b) in the form of an adventure or concern in the nature of trade; or (c) on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property; or (d) …………………….. Miscellaneous Taxation Ruling MT 2006/1: The New Tax System: the meaning of an entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) provides guidance on the meaning of 'an entity' and 'enterprise' for the purposes of the A New Tax System (Australian Business Number) Act 1999 (ABN Act). Goods and Services Tax Determination GSTD 2006/6 (GSTD 2006/6) provides that the principles in MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the GST Act. Although you are not carrying on an enterprise of property development, the nature of your activities in selling the portion of the land indicates that it was a revenue nature. However, it should be determined whether the activities undertaken by you are an adventure or concern in the nature of trade or just an isolated transaction. | Detailed Reasoning - Isolated transactions and sales of real property: Paragraphs 262-302 of MT 006/1 refer to isolated transactions and sales of real property. Paragraphs 262-263 of MT 2006/1 state: 262. The question of whether an entity is carrying on an enterprise often arises where there are 'one-off' or isolated real property transactions. 263. The issue to be decided is whether the activities are an enterprise in that they are of a revenue nature as they are considered to be activities of carrying on a business or an adventure or concern in the nature of trade (profit making undertaking or scheme) as opposed to the mere realisation of a capital asset. Paragraphs 264-269 of MT 2006/1 refer to factors that indicate whether the activities undertaken are an adventure or concern in the nature of trade and state: 264. The cases of Statham & Anor v. Federal Commissioner of Taxation ( Statham ) and Casimaty v. FC of T ( Casimaty ) provide some guidance on when activities to subdivide land amount to a business or a profit-making undertaking or scheme. In these cases, farm land was subdivided and sold. Minimal development work was undertaken to meet council requirements and to improve the presentation of certain allotments. On the particular facts of these cases the courts held that the sales were a mere realisation of a capital asset. 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…. 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 follow: • 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. 266. In determining whether activities relating to isolated transactions are an enterprise or are the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each particular case. This may require a consideration of the factors outlined above. However, there may also be other relevant factors that need to be weighed up as part of the process of 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. Based on the response you provided in relation to the questions listed in paragraph 265 of MT 2006/1, we consider that the activities carried out by you in relation to the sale of Y acres of land may not constitute carrying on of an enterprise. Therefore, the sale of Y acres of land will not be an adventure or concern in the nature of trade or a profit making undertaking or a scheme. It will simply be a disposal of excess land which you have inherited from your parent. Accordingly, you will not satisfy paragraph 9-20(1)(b) of the GST Act and the sale will not be a supply made in the course or furtherance of an enterprise that you carry on. You also confirmed that you are not registered or required to be registered for GST. Based on the facts provided, the sale will not be a taxable supply as it will not satisfy the requirements of section 9-5 of the GST Act.