Private ruling: Goods and services tax (GST) and property subdivision
Date of advice: 5 November 2015
Published: November 2015

Ruling: Q1: Is GST payable on your sale of the subdivided lots created from property X? | A1: No, because the sale of the lots will not be in the course or furtherance of an enterprise that you carry on. Your sale of the lots will instead be the mere realisation of a private capital asset.

Relevant facts and circumstances: You are not registered for GST. Many years ago, you purchased a property (property X). Property X is zoned rural residential and comprises (number) hectares. At the time you purchased property X, you were living and working overseas. Before moving to that country, you had lived in a certain locality in Australia and owned several properties there. Your intention at the time of purchasing property X was to live in the property when you returned to Australia from overseas. Your spouse is from the overseas country and does not like certain conditions. You and your spouse therefore decided that living in a certain locality in Australia would be more suitable than returning to a certain locality in Australia. You leased out property X to unrelated parties from (year) to (year) while living overseas. You are no longer leasing out property X. On a certain date, you and your family returned to Australia. At that time, you and your family used property X as your main residence. You remain living on property X. Property X was purchased with conditional approval for a subdivision of a few blocks of between (number) and (number) acres. These new lots would also be zoned rural residential. This approval was subject to many conditions. When you purchased the property, one option was for you to attempt the proposed subdivision of the property, retain the block on which your house is located and sell some of the other lots. This was assuming that you were able to satisfy the conditions of the Development Approval in such a way that it was feasible that you would not make a loss from subdividing. If the conditions were not able to be satisfied, you intended to continue to use property X as your main residence. You obtained a valuation when you purchased property X on a certain date. In relation to the development approval this valuation notes: As mentioned in section (number), the property has conditional approval for a (number) lot subdivision, however, until these conditions are supported by the requested technical reports (e.g geotechnical and slope stability report, site and soil report, possible amended bushfire risk management and irrigation plan, vegetation management plan, hydraulic analysis reports etc.) and given the engineering constraints to develop the property, we considered the highest and best use to the property is as a residential dwelling (with the possible potential for subdivision in the medium or longer term). You did not carry out any research as to the feasibility of the subdivision when you purchased property X. On a certain date, you began working through the conditions that you needed to meet in order to subdivide the property. You carried out preliminary engineering design work on satisfying the approval conditions intermittently while you were still living overseas. On a certain date, when you returned to Australia, you finalised your work on the conditions and obtained the approval to begin the work required to subdivide. You realised that any subdivision of property X would not be particularly profitable. For example, it became clear to you that after initially employing contractors to clear the land, it would not be feasible to pay for this work. You purchased a small excavator, taught yourself how to operate it and used this to clear the property. Any specialist clearing was still completed by contractors. This work took place over a number of years. You also engaged contractors to carry out: • road works and culvert installation • concrete works • electrical reticulation • surveys • geotechnical works • telephone installation • engineering work, and • asphalting You now expect to make a gain from the entire subdivision of (amount) (this represents the total proceeds from the sale of some of the lots). You did not acquire additional land to add to the original parcel of land. Property X has not been brought to account as a business asset. You do not have business organisation e.g. a manager, office and letterhead. You are relying on contractors to perform all of the technical work after undertaking preparatory work over a number of years. No funds have been borrowed to carry out the subdivision. The subdivision has been funded through savings and the sale of properties in Australia. There is no level of development of the land beyond that necessary to meet council approval (aside from rudimentary fencing). No buildings have been (or will be) erected on the land. You will use a real estate agent to sell the subdivided lots. You will only be placing one lot on the market at a time. The new lots will be zoned rural residential. Property X has been at all times used as a residential property. You have never been involved in a subdivision before.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1) | 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 9-40