Private ruling: GST and sale of real property
Published: November 2014

Ruling: Q1: Is GST payable on the sale of the subdivided land (the land)? | A1: Yes, GST is payable on the sale of the land.

Relevant facts and circumstances: The partnership of A, B, C and D is registered for goods and services tax (GST). It was established for the sole purpose of subdivision, development and sale of a land located in Australia. The land is a rural property that was originally used as part of a primary production business run by X. The business ceased in the early 19X0s. There are no residential premises on the land. When X passed away in 20xx, the land was transferred to one of their children, Y. In 20xx, Y passed away; and under their will, the land was transferred to their two siblings A and B. A and B sold a share in the property to C and D with a view of obtaining council approval to subdivide and ultimately sell the land. C and D provided the necessary capital to apply for the approvals and the assist with funding for the subdivision. The partners have not been previously involved in land development. The subdivision and the subsequent sale is a 'one-off' transaction and will not be an ongoing venture. The partnership paid for all the expenses incurred for the subdivision. The partnership claimed input tax credits for the GST paid in relation to those expenses. The partnership has lodged income tax returns each year with nil income. All subdivision costs are capitalised with the base land cost of $x in the partnership balance sheet. The development of the land was limited to the following: • clearing of trees • subdivision of the property • fencing • construction of a driveway and gate • seeking council approval

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 40-65

Reasons for decision: Summary: GST is payable on a taxable supply. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states: 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 Australia; 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. (* denotes a term defined under section 195-1 of the GST Act) The sale of the subdivided land by the partnership is for consideration and is connected with Australia. The partnership is registered for GST. As such, the requirements in paragraphs 9-5(a), 9-5(c) and 9-5(d) of the GST Act are satisfied. For the purpose of paragraph 9-5(b) of the GST Act, it must be determined whether the sale of the land is made in the course or furtherance of the partnership's enterprise. Under section 9-20 of the GST Act an enterprise 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; or • on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property. Miscellaneous Taxation Ruling MT 2006/1 provides guidance on what constitutes an enterprise. According to paragraph 234 of MT 2006/1, an adventure or concern in the nature of trade may be an isolated transaction that does not amount to a business but which has the characteristics of a business deal. In this case, A and B sold a share in the land to C and D in order to establish a partnership that will subdivide, develop and sell the land. The land was accounted for as the partnership asset. Council approval was sought and obtained. Input tax credits were claimed for expenses incurred in the subdivision. While the subdivision and the subsequent sale of the land is a 'one-off' transaction, it has the characteristics of a business deal. Accordingly, we consider that an enterprise is carried on by the partnership and the sale of the land would be made in the course of carrying on that enterprise. The requirement in paragraph 9-5(b) of the GST Act is satisfied. As the sale of the land meets the requirements in paragraphs 9-5(a) to 9-5(d) of the GST Act, the sale is a taxable supply unless it is GST-free or input taxed. | Detailed Reasoning - Input taxed supply: The partnership submitted that the sale of the subdivided land is an input taxed supply as it was used as part of the primary production business. Subsection 40-65(1) of the GST Act provides that a sale of real property is input taxed, but only to the extent that the property is residential premises to be used predominantly for residential accommodation (regardless of the term of occupation). Section 195-1 of the GST Act defines 'residential premises' to mean land or a building that: (a) is occupied as a residence or for residential accommodation; or (b) is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation. Vacant land is not capable of being occupied as a residence or for residential accommodation. The partnership advised that there are no residential premises on the land. Therefore, subsection 40-65(1) of the GST Act does not apply. The sale of the land is not an input taxed supply. | Detailed Reasoning - GST-free supply: There is no provision in the GST Act under which the sale of the land would be GST-free. | Detailed Reasoning - Conclusion: As the sale of the land meets the requirements in paragraphs 9-5(a) to 9-5(d) of the GST Act and is neither input taxed nor GST-free, the sale is a taxable supply. Accordingly, the GST is payable on the supply of the land.