Private ruling: Subdivision and sale of property by an Executor
Date of advice: 23 January 2019
Published: May 2019

Ruling: Q1: Are you, in your capacity as the Executor, required to register for GST pursuant to section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 ( GST Act)? | A1: No | Q2: Are you, as the Executor, required to inform purchasers of the lots located at X (the Lots) that there is no requirement to withhold GST at settlement pursuant to subsection 14-250 of the Taxation Administration Act 1953? | A2: Yes | Q3: Are you, as the Executor, required to account for any gains/losses on the disposal of the Lots on capital account pursuant to Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 ? | A3: Yes

Relevant facts and circumstances: On ddmmyyyy, an individual purchased a vacant block of residential land at Z (“the Property”) with the intention to build a house to reside in as the main residence. The purchase price of the Property was $X. After the purchase the individual considered the size of the Property was surplus to their needs and started the process of subdividing the Property into 3 lots comprising of: ● Lot 1 – Am² intended to be retained by Y for the construction of his main residence ● Lot 2 – Bm² intended to be sold to reduce their living expenses; and ● Lot 3 – Cm² intended to be sold to reduce their living expenses. On ddmmyyyy the individual passed away and left a Will which included instructions for you, as the Executor, to complete the subdivision and sell the lots. You intend to sell the Property on completion of the subdivision. The individual has never been involved in property development nor are they registered for GST. The intention was to dispose of the excess land in order to reduce their living expenses.

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 23-5 | Income Tax Assessment Act 1997, Parts 3-1 and 3-3

Reasons for decision: Detailed Reasoning - Are you, in your capacity as the Executor, required to register for GST pursuant to section 23-5?: Section 23-5 states: | Detailed Reasoning - Who is required to be registered: You are required to be registered under this Act if: (a) you are *carrying on an *enterprise; and (b) you *GST turnover meets the *registration turnover threshold. To determine whether you, in your capacity as the Executor, are required to be registered for GST, it is necessary to determine whether your activities of subdividing the Property and selling the subdivided lots can be regarded as carrying on an enterprise. Section 9-20 of the GST Act sets out the meaning of ‘enterprise’. Subsection 9-20(1) relevantly provides that: (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.. Whether Y’s activities and your activities as the Executor in completing the subdivision and selling the Lots amount to an enterprise will depend on whether the activities satisfy either of the descriptions in paragraph (a) or (b) of subsection 9-20(1) of the GST Act. In determining this question, the Commissioner has provided guidance in Miscellaneous Tax Taxation Ruling 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). This ruling considers, amongst other things, whether isolated property transactions, including those involving the subdivision and sale of land, are considered to be a profit making undertaking or scheme, as opposed to the mere realisation of an asset. Y bought the land to build their primary place of residence on. They were not involved in property development previously and was not registered for GST. They planned to dispose of excess land simply to reduce their living expenses. Y was not in the business of property development and the subdivision of the Property and sale of the Lots is a ‘one off’. Based on all of the above, your activities as the Executor in completing the subdivision and selling the Lots, are a mere realisation of an asset, and are not a profit making undertaking or scheme. As such, your activities as the Executor are not considered to be an enterprise. You are therefore not required to be registered for GST. | Detailed Reasoning - Question 2: Are you, as the Executor, required to inform purchasers of the lots that there is no requirement to withhold GST at settlement pursuant to subsection 14-250 of the Taxation Administration Act 1953. Paragraph 14(a) of Law Companion Ruling LCR 2018/4 (Purchaser’s obligation to pay an amount for GST on taxable supplies of certain real property) states that a purchaser has a GST withholding obligation if they are the recipient of a taxable supply. Section 9-5 of the GST Act 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; 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. It has been determined earlier in this ruling that you are not required to be registered for GST in your capacity as the Executor in relation to the sale of the Lots. Accordingly, the supply of the Lots by you to purchasers will not be taxable supplies. Paragraphs 58 and 59 of LCR 2018/4 deal with Vendor Notification Requirements: 58. A Vendor of residential premises or potential residential land must give a written notice to the purchaser before making the supply. The notice must state whether the purchaser is required to make a payment under section 14-250 in relation to the supply. 59. The requirement applies to all vendors of residential premises and potential residential land, not only those who are registered or required to be registered for GST. If the vendor is not registered or required to be registered for GST, they simply state that the purchaser is not required to make a payment. Therefore you are required to provide a written notification to purchasers that there is no requirement to withhold GST at settlement. | Detailed Reasoning - Question 3: Are you, as the Executor, required to account for any gains/losses on the disposal of the vacant residential (3 lots) (insert address) on capital account pursuant to Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 ? When the subdivision is complete, each block will be registered with a separate title and becomes an asset in its own right. A capital gain or capital loss event will occur when the subdivided blocks are sold. The date of acquisition of the subdivided blocks will be the date of acquisition of the original parcel of land and the cost base of the original land will then be apportioned between each block on a reasonable basis. TD 97/3 discusses what is considered ‘a reasonable basis’ to apportion the costs between the subdivided lots subject to the market value of each.