Private ruling: GST and the sale of sub-divided land
Published: December 2014

Ruling: Q1: Is the sale of Lot 1 a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 ? | A1: No, the sale of Lot 1 is not a taxable supply as it is not sold in the course or furtherance of an enterprise. | Q2: Are the sales of Lots 2, 3 and 4 taxable supplies under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 ? | A2: No, the sale of Lots 2, 3 and 4 are not taxable supplies as they are not sold in the course or furtherance of an enterprise. | Q3: Is the sale of your interest in Lot 5 a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 ? | A3: No, the sale of your interest in Lot 5 is not a taxable supply as it is not sold in the course or furtherance of an enterprise.

Relevant facts and circumstances: You purchased a property in 19XX. The property has been used as your and your spouse's private residence since 20XX. You have not carried on any enterprise from this property. Your spouse purchased an adjoining property in 200X. The property has been used as a residential rental property since 200Y. In 20YY you and your spouse engaged a surveyor to provide advice and assistance in regard to subdividing the two properties. The local council has approved the development application for the subdivision of the two properties into several lots. • Lot 1 contains the existing family home and is owned solely by you. • Lots 2, 3 and 4 were part of the original family residence and are vacant land owned solely by you. • Lot 5 is part of the adjoining property plus part of the family residence. It contains a residential premises and is owned jointly by you and your spouse as tenants in common. The approval of the development includes various conditions relating to matters such as storm water, fencing, vegetation removal and planting, provision of water, electricity and sewerage services and the construction of the private carriageway. Neither you nor your spouse, have undertaken property development previously and neither have borrowed funds to finance the development. You are not registered for GST.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 9-5.

Reasons for decision: Summary: The sale of real property is subject to GST if it is a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). You make a taxable supply if: • the sale is for consideration (payment); and • the sale is made in the course or furtherance of an enterprise that you carry on; and • the property is located in Australia; and • you are registered, or required to be registered for GST; and • the supply is neither GST-free nor input taxed Lot 1 A supply that is not made in the course or furtherance of an enterprise is not a taxable supply. Lot 1 contains your private residence and the sale is not a supply that is made in the course or furtherance of an enterprise even if the sale is made for a profit. Therefore, the sale of Lot 1 is not a taxable supply. Lots 2, 3 & 4 Miscellaneous Taxation Ruling MT 2006/1 provides a list of factors that provide assistance in considering whether activities are done in the form of an adventure or concern in the nature of trade. Paragraph 265 of MT 2006/1 states: 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 (a profit-making undertaking or scheme being the Australian equivalent, see paragraphs 233 to 242 of this Ruling). 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 follows: • 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. Lots 2, 3 and 4 originated from the property which has been the family residence since 19XX and have not been used for business purposes. Although the sales of Lots 2, 3 and 4 may demonstrate some indicators of an enterprise, on balance, the sub-division and subsequent sale is merely a way of disposing of your capital asset and does not, therefore, amount to an enterprise. Consequently, the sales of these Lots are not made in the course or furtherance of an enterprise and are not taxable supplies. Lot 5 As with the other Lots, your interest in Lot 5 originated from the family residence and as with Lots 2, 3 and 4, the sale of your interest in Lot 5 is the mere realisation of a capital asset of yours and is not made in the course or furtherance of an enterprise. Consequently, the sale of your interest in this Lot is also not a taxable supply.