Private ruling: GST and the sale of vacant land
Date of advice: 21 January 2021
Published: March 2021

Ruling: Q1: Is the supply of the Property by the Vendors a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No | Q2: In relation to this Property, will the acquisition by the Purchaser be through a supply that was ineligible for the margin scheme pursuant to section 75-5(3) of the GST Act? | A2: No

Relevant facts and circumstances: Four individuals (the Vendors) are the current owners of the Property. The Vendors each acquired their current interest in the land as tenants in common before July 2000, except in the case of one of the individuals. They held a 12.5% interest prior to July 2000 and acquired an additional 12.5% interest in the land when their spouse died. None of the vendors are registered for GST individually or together nor are they required to be registered for GST. The property has not been used for any commercial activity and has no structures on it. It has only been used for private purposes by the vendors such as for family picnics and outings. There have been no income tax deductions claimed in relation to the land. On ddmmyyyy the Vendors entered into a conditional contract, granting the Purchaser an option to purchase the Property for $X.Xm. This contract is still in effect and has not become unconditional as all its due diligence clauses have not yet been satisfied. Settlement is set at 360 days from the date of the conditional contract. The Purchaser has an ABN and if the sale proceeds will register for GST. Pursuant to clause X of Annexure A of the conditional contract the Vendors have agreed that the Purchaser can access the property for the reasons set out in clause 2. This includes undertaking any works or feasibility studies. In addition, there would be soil tests on the property and monitoring of water. A representative of the Purchaser, advised in a phone conversation that there would be no physical works conducted on the land by the Purchaser prior to settlement. The only activities would be surveying, water monitoring and soil testing. The Purchaser plans to develop the land and sell it off to third parties.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5(1) | A New Tax System (Goods and Services Tax) Act 1999 Subsection 75-5(1) | A New Tax System (Goods and Services Tax) Act 1999 Subsection 75-5(2) | A New Tax System (Goods and Services Tax) Act 1999 Subsection 75-5(3)

Reasons for decision: Summary: You are liable for GST on any taxable supplies that you make. [1] Section 9-5 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 (Australia); and (d) you are registered, or required to be registered for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. The supply of the Property by the Vendors is the sale of a private asset and not in the course of an enterprise. In addition, the Vendors are not registered or required to be registered for GST. Therefore, the sale of the land will not be a taxable supply. Under section 75-5 of the GST Act the margin scheme applies in working out the amount of GST on a taxable supply of real property where certain conditions are met. The use of the margin scheme is limited by the operation of subsection 75-5(2) of the GST Act which says "However, the margin scheme does not apply if you acquired the entire freehold interest, stratum unit or long-term lease through a supply that was ineligible for the margin scheme." Subsection 75-5(3) sets out when a supply will be ineligible for the margin scheme. In this case, subsection 75-5(2) does not apply as the Purchaser has not acquired the entire freehold interest through a supply to which subsection 75-5(3) applies. Therefore the Purchaser may apply the margin scheme to any subsequent supply of the property subject to meeting the remainder of the requirements of Division 75. [1] Section 9-40 of the GST Act