Private ruling: Property development - vacant land
Date of advice: 25 March 2026
Published: 9 June 2026
Date scheme commenced: XX XXX 20XX

Ruling: Q1: Are the expected sales of duplex 1 and duplex 2 (collectively duplexes) by you (Person A and Person B), taxable supplies under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes. You are conducting an enterprise under the proposed building scheme as a developer of property and meet the requirements of being required to register for GST under section 23-5 of the GST Act. As a result, the sales of the duplexes will be taxable supplies under section 9-5 of the GST Act. | Q2: If yes to question 1, are you able to use the margin scheme under section 75-5 of the GST Act? | A2: Yes. You may use the margin scheme under section 75-5 of the GST Act if you and the purchaser agree in writing that the margin scheme is to apply to the sale of each of the duplexes on or before making the sale. | Q3: If yes to question 2, as you inherited the property from your parent, can you apply a valuation method under section 75-11 of the GST Act in calculating the margin? | A3: Yes. Under section 75-11 of the GST Act you will use the GST-inclusive market value amount determined by an approved valuer and not the consideration amount paid for the property. You acquired the property from a deceased estate who acquired it before 1 July 2000 and do not know the consideration that was paid by them. The deceased was not registered or required to be registered, therefore, you may use an approved valuation of the real property as at the latest of: • 1 July 2000; • the day on which you inherited the real property; or • the day on which you were registered or required to be registered for GST. | Q4: If yes to question 1, are you able to claim input tax credits under section 11-20 of the GST Act? | A4: Yes. Under the proposed duplex development, you will be required to register for GST because the sale of new residential premises will constitute a taxable supply, as outlined in Question 1. Once registered, you will be entitled to input tax credits under section 11-20 of the GST Act, as the acquisitions you incur in carrying out the development will be creditable acquisitions made for a creditable purpose within the meaning of section 11-15 of the GST Act. | Q5: If you have decided to sell the property as vacant land instead of constructing the duplex building, will the sale of the land be a taxable supply under section 9-5 of the GST Act? | A5: No. Under the proposed sale of the vacant land, you will not be required to register for GST because the sale does not constitute the carrying on of a business or an adventure or concern in the nature of trade. As the supply is not made in the course or furtherance of an enterprise, the requirements of section 9-5 of the GST Act are not satisfied. The scheme commenced on: XX XXX 20XX

Relevant facts and circumstances: Your parent owned a residential property and an adjoining vacant block under separate titles since before 2000, with a combined area under 2 hectares. Both properties were always used together for private family purposes. The residence was their principal place of residence until they entered aged care in DDMMYYYY. Due to aged-care costs (including a refundable accommodation deposit of $X paid in 20XX) exceeding their passive income, your parent and their adult children (Person A and Person B, both persons referred to as 'you') explored options to generate income from the vacant land. The preferred option was construction of attached duplexes to generate rental income. The vacant land could only be developed as a single dwelling or attached duplexes under local planning controls. Subdivision could only occur after construction. You commenced the Complying Development Certificate (CDC) approval process in MMYYYY, but progress was delayed due to personal reasons. Your parent passed away on DDMMYYYY. Under their estate, you inherited the residence and vacant land in equal shares. Probate was granted on DDMMYYYY, title transferred on DDMMYYYY, and the vacant land was valued at $X for probate purposes. The CDC approval to construct the duplexes was granted on DDMMYYYY. No construction has commenced. In 20XX, you decided to sell the vacant land without development due to ongoing maintenance costs and lack of income. The land was marketed with an initial asking price of $X, later reduced to approximately $X, but no acceptable offers were received. Offers between $X and $X were rejected as materially below market value, based on comparable sales in the area. Market feedback indicated reduced demand for undeveloped land due to the block's irregular shape and proximity to a major road. By contrast, real estate advice suggested strong demand for newly completed, turnkey duplexes among owner-occupiers. As an alternative disposal strategy, you investigated constructing the approved duplexes, subdividing them into two Torrens title lots, and selling them. Based on indicative construction costs (approximately $X inclusive of GST), professional fees and subdivision costs, they estimate a higher net return of approximately $X compared with the highest undeveloped land offer of $X. If construction proceeds and the duplexes are sold, you will consider applying the margin scheme if available and financially advantageous. You are not professional property developers. Person A has limited prior experience with residential subdivisions on isolated occasions; Person B has no such experience. There is no formal partnership agreement, and any financing would likely be sourced against property equity.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 995-1 | 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 11-10 | A New Tax System (Goods and Services Tax) Act 1999 section 11-15 | A New Tax System (Goods and Services Tax) Act 1999 section 11-20 | A New Tax System (Goods and Services Tax) Act 1999 section 23-5 | A New Tax System (Goods and Services Tax) Act 1999 section 40-35 | A New Tax System (Goods and Services Tax) Act 1999 section 40-65 | A New Tax System (Goods and Services Tax) Act 1999 section 40-75 | A New Tax System (Goods and Services Tax) Act 1999 Division 75 | A New Tax System (Goods and Services Tax) Act 1999 section 75-5 | A New Tax System (Goods and Services Tax) Act 1999 section 75-10 | A New Tax System (Goods and Services Tax) Act 1999 section 75-11 | A New Tax System (Goods and Services Tax) Act 1999 section 75-14 | A New Tax System (Goods and Services Tax) Act 1999 section 75-15 | A New Tax System (Goods and Services Tax) Act 1999 section 75-35 | A New Tax System (Goods and Services Tax) Act 1999 section 184-1 | A New Tax System (Goods and Services Tax) Act 1999 section 188-10 | A New Tax System (Goods and Services Tax) Act 1999 section 188-20 | A New Tax System (Goods and Services Tax) Act 1999 section 188-25 | A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision: Summary: You are conducting an enterprise under the proposed building scheme as a developer of property and meet the requirements of being required to register for GST under section 23-5 of the GST Act. As a result, the sales of the duplexes will be taxable supplies under section 9-5 of the GST Act. | Detailed Reasoning - Detailed reasoning: In this ruling, • unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 , • all legislative terms of the GST Act marked with an asterisk are defined in section 195-1, and • all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website ato.gov.au. The definition of 'residential premises' in section 195-1 refers to 'land or a building that is occupied as a residence or is intended to be, and is capable of being, occupied as a residence'. Because of the definition, for land to be residential premises, there must be a building on the land that has the physical characteristics of a residence. Paragraph 40-65(2)(a) sets out that a sale of real property is input taxed but the sale is not input taxed to the extent that it is new residential premises. Section 40-75 sets out the meaning of 'new residential premises'. Paragraph 40-75(1)(a) states, amongst other things, that residential premises are 'new residential premises' where they have not previously been sold as residential premises or have previously been the subject of long-term lease. Under subsection 40-75(2) residential premises are not new residential premises, as defined in subsection 40-75(1)(a), if for a period of five years they have only been used to make input taxed supplies because of section 40-35(1)(a). The duplexes, when constructed, will be considered 'new residential premises' as defined in the GST Act as they have not been rented out for any period, whereas subsection 40-75(2) requires that they be rented continuously for five years to prevent the sale as new residential premises. A supply of real property that is new residential premises is a taxable supply where the conditions of section 9-5 are met. Section 9-5 sets out the conditions determining whether a taxable supply is made: You make a taxable supply if: a) you make the supply for consideration; and b) the supply is made in the course for furtherance of an enterprise that you carry on; and c) the supply is connected with the indirect tax zone; 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. There is no doubt that there will be a supply for consideration satisfying paragraph 9-5(a), and the supply will be made in the indirect tax zone (Australia) meeting paragraph 9-5(c). Additionally, there are no provisions making the supply of the new residential premises GST-free. The supply is not input taxed as it will be 'new residential premises' as defined under section 40-75. The remaining elements of 9-5 to be addressed are: • Whether the supply is made in the course of an enterprise you carry on; and • Whether you are required to be registered for GST. If one of the elements fails, the result will be that there is no taxable supply. | Detailed Reasoning - Are you making a supply in the course or furtherance of enterprise?: Section 9-20 relevantly defines 'enterprise' to include an activity, or series of activities done: (1) 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 Section 195-1 states that the phrase 'carrying on' in the context of an enterprise includes 'doing anything in the course of the commencement or termination of the enterprise'. This definition ensures that activities done in the course of the commencement or termination of the enterprise are included in determining whether the activities of the entity amount to an enterprise. The meaning of 'enterprise' is considered in MT 2006/1 and in Goods and Services Tax Determination GSTD 2006/6 Goods and services tax: does MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999? (GSTD 2006/6) which provides that the discussion on 'enterprise' in MT 2006/1 applies to the GST Act. Paragraph 159 of MT 2006/1 discusses how to determine the extent to which an activity or a series of activities amounts to an enterprise: 159. Whether or not an activity, or series of activities, amounts to an enterprise is a question of fact and degree having regard to all of the circumstances of the case. Furthermore, paragraph 160 of MT 2006/1 discusses the need to identify all the relevant activities in order to determine the existence of an enterprise: 160. It is important that the relevant activity or series of activities are identified in order to determine whether an enterprise is being carried on. This is because one activity may not amount to an enterprise, but that activity taken into account with other activities may form an enterprise. All activities need to be taken into account including activities from the commencement to the termination of the enterprise. For further information on commencement and termination activities, see paragraphs 120 to 148 of this Ruling. Paragraphs 252 to 254 of MT 2006/1 discusses further characteristics in order to determine the existence of an enterprise that is relevant to your circumstances in relation to seeking a better price: 252. Improving property beyond preparing an asset for sale, to bring it into a more marketable condition and gain a better price suggests an element of trade. [1] ... The circumstances that were responsible for the realisation 253. Trade involves operations of a commercial character. As assets can be sold for reasons other than trade, the circumstances behind the sale need to be considered. For example, a quick resale may have occurred as a result of sudden financial difficulties. Motive 254. If the activities on an objective assessment have the characteristics of trade, the person's motive is not relevant. It is relevant in those cases where the evidence is not conclusive. An intention to resell at the time of acquisition may be an indicator of the resale being an adventure or concern in the nature of trade. Consequently, the relevant activities are the activities associated with the potential development of the duplexes, its construction, the marketing and eventual sale. It is necessary to consider whether your activities are in the form of a business. | Detailed Reasoning - In the form of a business: Section 195-1 provides that a 'business' includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee. Paragraphs 177 to 179 of MT 2006/1 discuss the main indicators of carrying on a business, with reference to the principles in TR 97/11: Indicators of a business 177. To determine whether an activity, or series of activities amounts to a business, the activity needs to be considered against the indicators of a business established by case law. 178. TR 97/11 discusses the main indicators of carrying on a business. Based on that discussion some indicators are: • A significant commercial activity; • A purpose and intention of the taxpayer to engage in commercial activity; • an intention to make a profit from the activity; • the activity is or will be profitable; • the recurrent or regular nature of the activity; • the activity is carried on in a similar manner to that of other businesses in the same or similar trade; • activity is systematic, organised and carried on in a businesslike manner and records are kept; • the activities are of a reasonable size and scale; • a business plan exists; • commercial sales of product; and • the entity has relevant knowledge or skill. 179. There is no single test to determine whether a business is being carried on. Paragraph 12 of TR 97/11 states that 'whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing all the relevant indicators'. TR 97/11 can be referred to for a fuller discussion on whether a particular activity constitutes the carrying on of a business. The activity is significant given the potential sale price collectively may be over $X, and the level of risk in entering into an arrangement where you may borrow funds to support the construction. Your purpose and intention is to undertake the potential construction of two-storey duplex residences. Currently, you are not considering renting out the constructed property as an investment. Instead, your stated intention has been to sell the property for a profit, should that course of action provide the best financial outcome based on your review and planning. Any sale would be conducted on a commercial basis through real estate agents and the associated costs have been shared between you. You will likely engage consultants as required, including a builder, real estate agents and conveyancers. Although informal, you have a plan that is considered a business plan in the sense that you are evaluating the options that would produce the most favourable financial result, including either developing the duplexes or selling the land in its vacant state with approved plans. However the activity is not recurrent or regular in nature and you have stated you have never conducted this activity before so lack the relevant knowledge or skill to conduct the activity as a business. Overall, the facts of the case suggest that while some indicators set out in paragraph 178 of MT 2006/1 are present, they are insufficient to warrant the conclusion that you are carrying on a business. | Detailed Reasoning - In the form of an adventure or concern in the nature of trade: Paragraph 234 of MT 2006/1 distinguishes between activities done in the form of a 'business' and those done in the form of 'an adventure or concern in the nature of trade'. 234. Ordinarily, the term 'business' would encompass trade engaged in, on a regular or continuous basis. However, an adventure or concern in the nature of trade may be an isolated or one-off transaction that does not amount to a business, but which has the characteristics of a business deal. The commercial nature of a transaction or scheme is significant in determining whether the activities are done in the form of an adventure or concern in the nature of trade. This is further explained in MT 2006/1. 237. The term 'profit-making undertaking or scheme' like the term 'an adventure or concern in the nature of trade' concerns transactions of a commercial nature which are entered into for profit-making but are not part of the activities of an on-going business. Both terms require the features of a business deal, see McClelland v. Federal Commissioner of Taxation , in which Lord Donovan, delivering the opinion of the majority said: It seems to their Lordships that an 'undertaking or scheme' to produce this result must - at any rate where the transaction is one of acquisition and resale - exhibit features which give it the character of a business deal. It is true that the word 'business' does not appear in the section but given the premise that the profit produced has to be income in its character their Lordships think the notion of business is implicit in the words 'undertaking or scheme'. Paragraph 244 of MT 2006/1 further explains that an adventure or concern in the nature of trade includes a commercial activity that does not amount to business, but which has the characteristics of a business deal are of a revenue nature. As a result, we consider that your proposed building activities are an enterprise, as they are an adventure in the nature of trade under paragraph 9-20(b) and, consequently, the requirement of the taxable supply definition under paragraph 9-5(b) is met. | Detailed Reasoning - Registration: The final factor for consideration is whether you are required to be registered as required by paragraph 9-5(d). • Registration under section 23-5 provides that you are required to be registered for GST if: • you are carrying on an enterprise, and • your GST turnover meets the GST registration turnover threshold, which is currently $75,000 for entities other than non-profit entities. Subsection 188-10(1) provides that you have a GST turnover that meets the registration turnover threshold if: • your current GST turnover is at or above the registration turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the registration turnover threshold, or • your projected GST turnover is at or above the registration turnover threshold. The expected sale of the duplexes should be included in the turnover figures for the partnership (partnership explained in further below). At the point you market the property for sale, it should have been included in your projected turnover calculations. At that stage the sale will exceed the turnover threshold, and the partnership should register prior to the expected sales because the projected GST turnover would have been in operation per section 188-20 which states: (1) Your projected GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during that month and the next 11 months, other than: (a) supplies that are input taxed; or (b) supplies that are not for consideration (and are not taxable supplies under section 72-5); or (c) supplies that are not made in connection with an enterprise that you carry on. As you did not make an input taxed supply, the prospective supplies are for consideration of an estimated $X, and as established above, the supply will be in the course of your enterprise, the sale is included in your turnover calculation. Section 188-25 sets out that supplies made of capital assets or supplies made as a consequence of ceasing to carry on an enterprise or substantially and permanently reducing the size or scale of the enterprise are to be disregarded. Previously in the matter of Ian Mark Collins & Mieneke Mianno Collins ATF, The Collins Retirement Fund and Commissioner of Taxation [2022] AATA 628 (Collins), the question was raised whether section 188-25 applies where a property developer sells property as trading stock and thereby substantially reduces the size and scale of their enterprise. The Administrative Appeals Tribunal as it then was, stated that the purpose of paragraph 188-25(b) is to exclude from calculation the value of projected supplies that are outside the usual run of transactions which, if included, would distort an assessment of the scale of an entity's enterprise. The Tribunal found at [73] and [77] that the sale of land is the central objective of a land development enterprise and the sales were made in the course of and as a consequence of the applicant carrying on the enterprise, not as a consequence of ceasing, or a reduction in the size or scale of, that enterprise. The Tribunal considered at [78] that the applicant's approach under either limb of paragraph 188-25(b) would mean that land developers could escape GST on land sales transacted in the ordinary course of their business as being made solely as a consequence of ceasing or substantially and permanently reducing the size or scale of their enterprise. As a result, you are required to be registered at the time when you begin marketing the properties for sale and section 9-5(d) will be met. However, you can voluntarily backdate the registration to a tax period where the project enterprise was in serious contemplation. The question now turns to 'who' is required to be registered. | Detailed Reasoning - Is the enterprise undertaken by a partnership?: Paragraph 9-5(a) of section 9-5 identifies the entity making the taxable supplies if all the conditions are met. In this case, the supplies are the sale of real property being the duplexes once you have completed construction and secured sale contracts. 'You' is defined in section 195-1 as: you: if a provision of this Act uses the expression you, it applies to entities generally, unless its application is expressly limited. Note: The expression 'you' is not used in provisions that apply only to entities that are not individuals. 'You' appears in paragraph 9-5(a): 'you make a supply' and 'you' is also connected to any identifiable enterprise and in the course or furtherance of whose enterprise are the supplies being made under paragraph 9-5(b). Additionally, 'you' is tied to the entity that is registered or required to be registered. Section 184-1 sets out the definition of 'entity': 184-1 Entities (1) Entity means any of the following: (a) an individual. (b) a body corporate. (c) a corporation sole. (d) a body politic. (e) a partnership. (f) any other unincorporated association or body of persons. (g) a trust. (h) a superannuation fund. For brevity, we can set aside any assessment of whether the arrangement is more appropriately characterised as a body corporate, a corporation sole, a body politic, a trust or a superannuation fund. None of these classifications accurately reflects the relationship between Person A and Person B for GST purposes. It is therefore preferable to focus the analysis on the entity types that most closely align with the form and substance of the arrangements the parties have entered into. 'Unincorporated association or body of persons' is discussed in Miscellaneous Tax Ruing MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1). The features are set out in para 50 citing Conservative and Unionist Central Office v. Burrell (Inspector of Taxes) [1980] All ER 42 at 58. It sets out some of the characteristics of an unincorporated association or body of persons considered in that case: • there are members of the association. • there is a contract binding the members amongst themselves. • there is a constitutional arrangement for meetings of members and for appointing officers. • the members will normally be free to join or leave the association. • the association will normally continue in existence independently of any change to the composition of the association; and • as a matter of history, there will have been a moment in time when a number of persons combined to form the association. However, not all of these characteristics need to be present. Person A and Person B, at the outset of considering the duplex development, made a verbal agreement to act jointly in facilitating the proposed construction and sale of the properties. Under this arrangement, Person B is content for Person A to take the lead in managing the day-to-day activities, while both parties retain joint involvement by agreeing on the key decisions, regardless of the direction ultimately taken. There is a clear association of persons, and the arrangement is plainly profit-motivated, as demonstrated by the steps taken to secure the best financial outcome, including evaluating both a build-and-sell strategy and the option of selling the land in its existing state. The arrangement remains informal, in that it is not governed by any detailed rules or an enforceable written contract. There is no sharing of output and no indication that the undertaking is being conducted through a joint venture entity. The conduct and communications between Person A and Person B show a shared purpose, mutuality of effort and a coordinated approach to achieving the planned development outcome. While financial arrangements have not yet been formalised, you have indicated that both parties intend to draw on equity via a loan facility to fund the development. There is no evidence that either participant is acting within their own separate enterprise in respect of the project. Having considered the various entity types listed in section 184-1, and in light of the features identified above, the entity type that most appropriately warrants further examination is a partnership. | Detailed Reasoning - Are you making supplies as a partnership?: The term 'partnership' is defined by section 195-1 to have the meaning given by section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997). Section 995-1 of the ITAA 1997 defines a partnership to mean: (a) an association of persons (other than a company or a limited partnership) carrying on business as partners or in receipt of ordinary income or statutory income jointly; or (b) a limited partnership. This definition of partnership is wider than at common law. The first limb of the definition in paragraph (a) reflects the definition of partnership contained in State and Territory Partnership Acts. The second limb of the definition in paragraph (a) extends 'partnership' for taxation purposes to include persons in receipt of income jointly. It is not a limited partnership as the liability between the participants is shared and not restricted to the capital contributions of each partner. Limited partnerships must be registered under the Partnerships Act 1892 (NSW) . A partnership within the extended meaning for taxation purposes exists, for example, where two or more persons derive income from real estate that they own as joint tenants or as tenants in common. It is an entity in its own right as it is a partnership for the purposes of the A New Tax System (Australian Business Number) Act 1999 . It has also been held that the contract between the members will be based on rules that set out obligations and confer rights on members. The rules can fall short of a legally enforceable contract between members. MT 2006/1 at paragraphs 56-57 provides an apt example of where a partnership may exist rather than a non-entity joint venture under similar facts to this case: Example 4 - an entity that is not a non-entity joint venture 66. Mara and Lauren go into business together to buy a block of land jointly and to build a block of units with a view to making a profit. They enter into an agreement to share the profit on sale of the units and to employ a real estate agent to market the units. 67. Mara and Lauren have created a partnership to undertake the activities. The partnership is an entity. It is not a non-entity joint venture as each of them takes a share of the profits generated by the venture. The appropriate entity that is making the supply is a general law partnership where there is an association of persons carrying on a business. At paragraph 21 of Goods and Services Tax Ruling GSTR 2004/6 Goods and services tax: tax law partnerships and co-owners of property (GSTR 2004/6) it makes the point that 'association' is not defined in the legislation. The ordinary meaning is set out there: '1. an organisation of people with a common purpose and having a formal structure; 5. connection or combination'. That is there must be a link or existence of common purpose between the parties. Under a general law partnership that association occurs via an agreement written or oral: see Goods and Services Tax Ruling GSTR 2003/13 Goods and services tax: general law partnerships (GSTR 2003/13) at paragraph 16. How and when a general law partnership is formed is determined by the facts indicating when the partners commenced carrying on an enterprise. Where no partnership agreement is entered, the intention of the parties evidenced by their conduct including the manner in which they deal with each other and with other parties amongst other factors is key. There must be 'mutual assent'. This is evidenced by the verbal agreements the parties entered into that govern key issues on what activity to commence based on the most agreeable outcome financially. If the parties had indicated that they did not intend to form a partnership, they could have mutually agreed to not to form a partnership and importantly, altered how liability is determined. The facts suggest you intended a partnership outcome. Person A and Person B formed an association through a verbal agreement to act jointly on a property development project (construction and sale of duplexes). The communications and agreed roles demonstrate coordinated activity and shared income producing purpose. This satisfies the first limb of the definition of a partnership under section 995-1 of ITAA97. On this basis, we consider the 'you' referred to in section 9-5 is in this case a partnership, constituted by two members and would register for GST as a tax partnership. | Detailed Reasoning - Conclusion: As section 9-5 has been satisfied, you meet all the requirements of a taxable supply. You are conducting an enterprise under the proposed building scheme as a developer of property and meet the requirements of being required to register for GST under section 23-5. As a result, your sale of the duplexes will be taxable supplies under section 9-5. | Detailed Reasoning - Question 2: If yes to question 1, are you able to use the margin scheme under section 75-5 of the GST Act? | Summary: You may use the margin scheme under section 75-5 of the GST Act if you and the purchaser agree in writing that the margin scheme is to apply to the sale of each of the duplexes on or before making the sale. | Detailed Reasoning - Detailed reasoning: One of the requirements for the application of the margin scheme is that you and the prospective purchaser agree in writing on or before the prospective sale that the margin scheme will apply to the sale. This requirement is in subsection 75-5(1A). You acquired the property in 20XX as an inheritance. Under subsection 75-5(3)(b) you are not eligible to use the margin scheme if you acquired the interest from a deceased person if the deceased person was ineligible for the margin scheme. In your parent's case, they acquired the interest before 1 July 2000 and would not be ineligible under subsection 75-5(3) as none of those provisions apply to disallow them from successfully applying the margin scheme should they have attempted to enter into one. As you acquired the property in 20XX through inheritance, the relevant public ruling to apply to your circumstances is Goods and Services Tax Ruling GSTR 2006/8 Goods and services tax: the margin scheme for supplies of real property acquired on or after 1 July 2000 (GSTR 2006/8). Under paragraph 75-5(1)(a), the threshold requirements for application of the margin scheme are that you must have made a taxable supply of real property by selling a freehold interest in land. As stated above, you will make a taxable supply if you sell the proposed duplexes. Subsection 75-5(2) sets out that the margin scheme cannot be used where the supply is ineligible for the margin scheme. Paragraphs 75-5(3)(a) to (g) lists the conditions that invalidate the use of the margin scheme. We accept that none of these factors make the proposed sale of the duplexes ineligible for the margin scheme. Subsection 75-10(1) provides that if a taxable supply of real property is made under the margin scheme, the GST on the supply is 1/11th of the margin for the supply. Subsection 75-10(2) defines the margin as the amount by which the consideration for the supply exceeds your acquisition of the interest in the property. That is, the margin is the difference between the price for which you purchased the property and the price for which you subsequently sold it. As a result, you pay a concessional amount of GST calculated on that margin rather than the total sale amount of the final sale. As you acquired the property through inheritance, we will address the margin calculation within question 3. Section 75-14 ensures that the costs of any improvements in relation to the real property are not included in the margin calculation. This includes the costs for the works required in meeting subdivision requirements and the fees you were charged by your builder. While these costs are not part of the margin calculation, they may be creditable acquisitions and you can claim the associated input tax credits. Refer to GSTR 2006/8 at paragraphs 56 and 57 and the response to question 4. Section 75-15 provides rules to work out the margin in situations where you make a taxable supply of real property that relates only to part of the land or premises. This section applies to you as the proposed sale of the duplexes will involve a subdivision once the properties are completed. You will be required to work out the margin with reference to a proportion of the amount valued under the method detailed in the answer to question 3. Calculating the proportion is dealt with in GSTR 2006/8 at paragraphs 58 to 61. Where the value of the land is uniform per square metre, it may be suitable in your case to apply the land area method. | Detailed Reasoning - Conclusion: The margin scheme is available to you as you meet the threshold requirements, providing you do all things required in Division 75 because you: • will be making a taxable supply in relation to the proposed sale of the duplexes, • will make the agreement in writing on or before the settlement of the duplexes, and • acquired the property without GST in the price. | Detailed Reasoning - Question 3: If yes to question 2, as you inherited the property from your parent, can you apply a valuation method under section 75-11 of the GST Act in calculating the margin? | Summary: Under section 75-11 of the GST Act you will use the GST-inclusive market value amount determined by an approved valuer and not the consideration amount paid for the property. You acquired the property from a deceased estate who acquired it before 1 July 2000 and do not know the consideration that was paid by them. The deceased was not registered or required to be registered, therefore, you may use an approved valuation of the real property as at the latest of: • 1 July 2000; • the day on which you inherited the real property; or • the day on which you were registered or required to be registered for GST. | Detailed Reasoning - Detailed reasoning: As we have established under question 2, you are entitled to use the margin scheme; however, the question arises as to how to value the acquisition cost of the property when acquired under an inheritance. Guidance is found under subsection 75-11(3) which provides: (3) If: (a) you acquired the interest, unit or lease in question by inheriting it; and (b) none of subsections (1) to (2B) applies; and (c) the entity from whom you inherited the interest, unit or lease (the deceased ) acquired it before 1 July 2000; the margin for the supply you make is the amount by which the consideration for the supply exceeds: (ca) if you know what was the consideration for the supply of the interest, unit or lease to the deceased and you choose to use that consideration to work out the margin for the supply--that consideration; or (d) if paragraph (ca) does not apply and, immediately before the time at which you inherited the interest, unit or lease, the deceased was neither registered nor required to be registered--an approved valuation of the interest, unit or lease as at the latest of: (i) 1 July 2000; or (ii) the day on which you inherited the interest, unit or lease; or (iii) the first day on which you registered or were required to be registered; or (e) if paragraph (ca) does not apply and, immediately before the time at which you inherited the interest, unit or lease, the deceased was registered or required to be registered--an approved valuation of the interest, unit orlease as at the later of: (i) 1 July 2000; or (ii) the first day on which the deceased registered or was required to be registered. As discussed in the facts, your parent was not registered or required to be registered. As a result, the margin for the supply of the duplexes is the amount of consideration (what the duplexes sell for) that exceeds an approved valuation for the land as at the latest of 1 July 2000, the day on which you inherited the property, or the first day on which you were registered or required to be registered for GST. For the purposes of clarity, the day you inherited the property is detailed above in paragraph 54 of GSTR 2006/7 as the day of death, being DDMMYYYY. A New Tax System (Goods and Services Tax) Act 1999 Margin Scheme Valuation Requirements Determination (MSV 2020/1)provides guidance at paragraphs 6 and 11 on an approved valuation by an approved valuer as defined by section 75-35: | Detailed Reasoning - 6. Method 1: valuation by a professional valuer: For a valuation by a valuer to be an approved valuation for the purposes of Division 75 that valuation must be made in accordance with the following requirements: (1) the valuer must be a professional valuer ; (2) the valuation must be in writing; (3) the valuation must determine the market value of the interest, unit or lease at the valuation date; (4) the valuation must be made in a manner that is not contrary to the professional standards recognised in Australia for the making of real property valuations; (5) the valuation must include a signed certificate which specifies: (a) a full description of the property being valued; (b) the applicable valuation date; (c) the date the valuer provides the valuation to the supplier; (d) the market value of the property at the valuation date; (e) the valuation approach and the valuation calculation; and (f) the name and qualifications of the valuer; ... | Detailed Reasoning - 11. Definitions: Professional valuer means: (1) a person registered or licensed to carry out real property valuations under a Commonwealth, a State or a Territory law; or (2) a person who carries on a business as a valuer in a State or a Territory where that person is not required to be licensed or registered to carry on a business as a valuer; or (3) a person who is: (a) a member of the Australian Property Institute and accredited as a Certified Practicing Valuer; or (b) a member of the Royal Institution of Chartered Surveyors and accredited as a Chartered Valuation Surveyor; or (c) a member of the Australian Valuers Institute and accredited as a Certified Practicing Valuer. | Detailed Reasoning - Conclusion: As long as the valuation is carried out in compliance with section 75-35, the margin calculation will be effective and acceptable for the purposes of carrying out the proposed margin scheme. | Detailed Reasoning - Question 4: If yes to question 1, are you able to claim input tax credits under section 11-20 of the GST Act? | Summary: Under the proposed duplex development, you will be required to register for GST because the sale of new residential premises will constitute a taxable supply, as outlined in Question 1. Once registered, you will be entitled to input tax credits under section 11-20 of the GST Act, as the acquisitions you incur in carrying out the development will be creditable acquisitions made for a creditable purpose within the meaning of section 11-15 of the GST Act. | Detailed Reasoning - Detailed reasoning: Under section 11-5 you make a creditable acquisition if: You make a creditable acquisition if: (a) you acquire anything solely or partly for a creditable purpose; and (b) the supply of the thing to you is a taxable supply; and (c) you provide, or are liable to provide, consideration for the supply; and (d) you are registered, or required to be registered. The meaning of an acquisition is found under section 11-10: | Detailed Reasoning - Meaning of acquisition: (1) An acquisition is any form of acquisition whatsoever. (2) Without limiting subsection (1), acquisition includes any of these: (a) an acquisition of goods; (b) an acquisition of services; (c) a receipt of advice or information; (d) an acceptance of a grant, assignment or surrender of real property; (e) an acceptance of a grant, transfer, assignment or surrender of any right; (f) an acquisition of something the supply of which is a financial supply; (g) an acquisition of a right to require another person: (i) to do anything; or (ii) to refrain from an act; or (iii) to tolerate an act or situation; (h) any combination of any 2 or more of the matters referred to in paragraphs (a) to (g). ... Essentially, acquisitions will be made in constructing the duplexes (for example the building costs and legal fees). For you to be entitled to input tax credits, those acquisitions need to be what is considered an acquisition with a creditable purpose as defined by section 11-15: | Detailed Reasoning - Meaning of creditable purpose: (1) You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. (2) However, you do not acquire the thing for a creditable purpose to the extent that: (a) the acquisition relates to making supplies that would be input taxed; or (b) the acquisition is of a private or domestic nature. Acquisitions made in carrying on your property development enterprise are not made in relation to providing input taxed supplies, nor private or domestic, but for the taxable purposes of the supply of new residential premises, under section 9-5. Therefore, acquisitions made for this purpose satisfy a creditable purpose and are creditable acquisitions. Section 11-20 provides that as you have a creditable acquisition you are entitled to the input tax credits: | Detailed Reasoning - Who is entitled to input tax credits for creditable acquisitions?: You are entitled to the input tax credit for any creditable acquisition that you make. GSTR 2006/8 at paragraphs 56 and 57 gives an example of entitlement to input tax credits: 56. Bob is a builder. He purchases a block of vacant land for $180,000 and then constructs a house on the land. The cost of constructing the house is $100,000. Bob sells the house and land package for $400,000 . 57. The margin for the supply is $220,000 ($400,000 - $180,000). The cost of constructing the house is not part of the consideration for the acquisition of the land. Instead, Bob is entitled to input tax credits for any construction acquisitions (for example, building materials and subcontractors' services) that are creditable acquisitions . | Detailed Reasoning - Conclusion: Under the proposed duplex development, you will be required to register for GST because the sale of new residential premises will constitute a taxable supply, as outlined in Question 1. Once registered, you will be entitled to input tax credits under section 11-20, as the acquisitions you incur in carrying out the development will be creditable acquisitions made for a creditable purpose within the meaning of section 11-15. | Detailed Reasoning - Question 5: If you have decided to sell the property as vacant land instead of constructing the duplex building, will the sale of the land be a taxable supply under section 9-5? | Summary: Under the proposed sale of the land, you will not be required to register for GST because the sale does not constitute the carrying on of a business or an adventure or concern in the nature of trade. As the supply is not made in the course or furtherance of an enterprise, the requirements of section 9-5 are not satisfied. | Detailed Reasoning - Taxable supply: The sale of real property is a taxable supply if all the requirements of section 9-5 are satisfied, as outlined in Question 1. Based on the information you have provided, the proposed sale of the property satisfies the requirements of paragraphs 9-5(a) and 9-5(c) because: • the proposed sale of the property is for consideration; and • the supply is connected with Australia, as the property is located in Australia. It therefore remains to be determined whether the sale is: • made in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b)), and • made by an entity that is required to be registered for GST (paragraph 9-5(d)). | Detailed Reasoning - Enterprise - sale of vacant land only: Having regard solely to the facts relating to the proposed sale of the vacant land, we consider that the sale of the property you inherited from your parent does not exhibit the indicators of a business discussed in Question 1. In the absence of the property development activities contemplated in Question 1, the proposed sale lacks any commercial character. In particular: • the purpose of the sale is personal and domestic in nature; • there is no business plan or organised strategy guiding the disposal of the land, unlike the proposed duplex development; and • the transaction does not require any significant commercial development expertise, professional advice, or coordinated activity to proceed. Accordingly, the sale does not constitute the carrying on of a business for the purposes of subsection 9-20(1). | Detailed Reasoning - Adventure or concern in the nature of trade: We have also considered whether the proposed sale constitutes an adventure or concern in the nature of trade under paragraph 9-20(1)(b). You acquired the property by inheritance on DDMMYYYY. While you are contemplating development activities in Question 1, the proposed activity under this question involves disposing of the property without any improvements. This activity does not amount to an enterprise as an adventure in the nature of trade. Although some examples in MT 2006/1 involve subdivision or disposal of land, the common feature of those examples is that the activities undertaken are limited to the mere realisation of a capital asset, involving minimal work, consultation, commerciality, or professional engagement. Those activities do not reach the threshold of an enterprise. In your case, you are simply selling land that was inherited from your parent, with no additional activities undertaken to enhance or exploit the land. Profit - making intention and activities undertaken As outlined in the facts, the proposed sale is not undertaken with a primary intention of maximising profit. The expected sale proceeds are less than the value anticipated around the time of probate, when the property was subject to a higher valuation. You have not improved the property beyond what is necessary to prepare it for sale. There has been no activity undertaken to bring the vacant land into a more marketable condition to obtain a higher price. The dominant purpose of the activity is therefore the disposal of the land itself, rather than the pursuit of a commercial profit-making venture. | Detailed Reasoning - Conclusion: On balance, we consider that the proposed sale of the vacant property does not amount to the carrying on of an enterprise for GST purposes under subsection 9-20(1). As a taxable supply requires all four elements of section 9-5 to be satisfied and paragraph 9-5(b) is not met, the proposed sale is not a taxable supply. Accordingly, there is no requirement to consider GST registration in relation to this transaction. [1] See for example, Cape Brandy Syndicate v. CIR 12 TC 358 [1921] 1 KB 64 where the taxpayers blended a quantity of brandy they had bought with French brandy before selling it. This was an additional factor indicating that they had undertaken a trading transaction. This decision was affirmed on appeal, see [1921] 2 KB 403.