Private ruling: Sale of subdivided land
Date of advice: 15 May 2026
Published: 27 July 2026

Ruling: Q1: Will the proceeds or profit made on the sale of Lot D constitute assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. | Q2: Will the gain from the sale of Lot D be treated as a mere realisation of a capital asset and subject to capital gains tax (CGT) under Parts 3-1 and 3-3 of the ITAA 1997? | A2: No. Issue 2: GST | Q3: Does the subdivision activity of the Property constitute the carrying of on an enterprise under section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A3: Yes. | Q4: Will the sales of the subdivided Lot A, Lot B, Lot C, and Lot D constitute taxable supplies under section 9-5 of the GST Act? | A4: Yes, for the sale of Lot B, C and D. No, for the sale of Lot A, if sold as is.

Relevant facts and circumstances: You are an individual operating a X business as a sole trader. You have a history of GST registrations and cancellations dating back to XX XXX XXXX, when you were first registered for GST. Your most recent GST registration commenced on XX XXX XXXX and was subsequently cancelled. You are not currently registered for GST. Property On XX XXX XXXX, you acquired the Property for $XX. The Property settled in XXX XXXX. You acquired the Property as a long-term investment with the intention of possible future personal use. The purchase was funded through a standard residential bank loan. The Property comprised an area of X acres of land including a residential dwelling that has been rented since acquisition. The Property also contained sheds, fencing and cleared land suitable for rural/residential use. The Property is zoned rural residential, and this has not changed during your ownership of the Property. At the time of purchase, the Property had been advertised as having subdivision potential, with the previous owner already having obtained development approval from the council. You did not conduct any further research into the subdivision potential at that time. The original real estate advertisement outlined the following features of the Property and the dwelling: • Information supplied The Property was not subject to any lease agreement at the time of acquisition. Following the acquisition of the Property, you leased the Property to a tenant. A property manager was engaged to manage the leasing of the Property. The Property was advertised for lease shortly after acquisition. There is no relationship between the tenant and you. You intended to live in the dwelling upon retiring from your business and after selling your primary residence. In the meantime, you intended to use the property as a private investment. You sold your primary place of residence on XX XXX XXXX, but you have not yet moved into the Property. Subdivision activity Due to changing personal and financial circumstances, including considerations around reduced capacity to continue working and retirement planning, you considered options to realise part of the value of the Property. In or around XXXX, subdivision was identified as a practical means of achieving this outcome. The thought to subdivide was prompted by your desire to relocate outside of the town as part of your informal retirement strategy. The previous owner of the Property obtained development approval to reconfigure the single lot into X lots. The application was lodged with XX Council in XXX XXXX and was approved on XX XXX XXXX (development reference number XXXX-XXXX). On XX XXX XXXX, you applied for operational works and obtained approval on XX XXX XXXX (reference number XXXX-XXXX) to finalise the subdivision. Subdivision works commenced on XX XXX XXXX. You engaged a civil engineer and a surveyor in connection with the subdivision. The subdivision works were carried out by a third-party civil contractor. Subdivision works were completed in XXX XXXX, with the Council sign-off occurring in XXX XXXX. Works undertaken were limited to those required to satisfy council approval conditions and facilitate subdivision. These works included: - road widening of XX Road and part of XX Road; - installation of power infrastructure and street lighting; - removal of existing structures including water tank, animal shelters, arena and fencing; - tree removal; - construction of driveways; - minor landscaping, including turfing of nature strips; - surveying, engineering and required testing, including soil and compaction testing; - council and legal costs. The total subdivision-related costs were approximately $XX, comprising: - civil and professional costs: $XX, and - payment to funding party: $XX. Funding was provided by a private individual. A total of approximately $X was advanced to fund subdivision-related costs. Funds were advanced progressively between XXX XXXX and XXX XXXX as required to meet subdivision-related expenses. The arrangement was informal in nature and not documented by a formal loan agreement. There were no interest charges or standard commercial lending terms. It was understood between the parties that the amounts advanced would be repaid, together with an additional agreed amount. The funding party was not involved in the subdivision activities, decision-making, or management of the works. You have retained invoices and receipts relating to the subdivision costs. You have not maintained a cashbook or any software for record-keeping. A solicitor prepared and lodged the plan with the land titles office, and the titles for the subdivided Lots were issued on XX XXX XXXX. The details of the subdivided Lots are as follows: • Lot A comprises an area of Xm² and contains a residential dwelling and a shed. There are no commercial structures on the lot. • Lot B is vacant land of an area of Xm². • Lot C is vacant land of an area of Xm². • Lot D is vacant land of an area of Xm². Following subdivision, the Lots are generally level, with driveways installed and existing structures largely removed. The Lots are otherwise in a basic, undeveloped state. You did not obtain any formal appraisals or valuation of the Property prior to undertaking the subdivision. Your personal involvement in the subdivision was limited and confined primarily to engaging and liaising with consultants and contractors. It is estimated that you spent less than one hour per week on subdivision-related activities. Prior to this subdivision, you have never undertaken any land subdivision or property development activities. You do not operate a property development business and do not maintain an office, management structure, letterhead, website, email address or anything else in relation to the subdivision activity. You do not have a business plan in relation to the subdivision activity. No subdivision or development costs have been claimed as income tax deductions by you or any related entity. The name 'X Road' reflects a historical family association with the local area and is not connected to you or any of your business activities, development enterprise, or subdivision. Sale of Lot D and future plans You sold Lot D on XX XXX XXXX for $XX. The sale was not publicly marketed or listed online, but was facilitated and the purchaser was introduced via a real estate agent. You had limited involvement in the sale process, with a real estate agent engaged to manage the transaction. The sale was conducted on an arm's length basis. Lot D settled on XX XXX XXXX. Lot D represents approximately XX% of the total land area and, on this basis, the subdivision costs attributable to Lot D are approximately $XX. Lot A is currently leased for residential accommodation under a long-term agreement which will end in XXX XXXX. You intend to retain Lot A for future personal residential use. No final decision has been made in relation to Lots B and C, which may be retained or sold depending on your circumstances. There are no current plans to undertake further development of the subdivided lots. Any future development, if undertaken, would be for personal residential purposes. You estimate that the vacant Lots would currently sell for approximately $XX each. Prior real estate experience You have, over an extended period, acquired and disposed of residential properties. These transactions have primarily related to personal residences and long-term holdings, as well as some investment properties. Some properties were held as rental investments and, in certain cases, renovated prior to sale. You have also, on a few occasions, entered into off-the-plan land contracts, which were sold following registration of title. These activities were undertaken in your personal capacity and not as part of a property development business. You provided a summary of your real estate activities undertaken in your capacity as an individual. You also provided a summary of real estate activities conducted by your related entities. Entity A conducted a single off-the-plan purchase and sale. The entity is in the process of being wound up. Entity B is the trustee for B Investment Unit Trust that undertook the purchase and sale of several vacant residential blocks. These transactions were undertaken as investment activities. The activities were not undertaken as part of a business of land development or subdivision and did not involve any development works. Entity C is a partnership that involves a single property transaction.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 Part 3-1 | Income Tax Assessment Act 1997 Part 3-3 | 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 | A New Tax System (Goods and Services Tax) Act 1999 section 40-65 | A New Tax System (Goods and Services Tax) Act 1999 section 195-1 Assumptions | For the purposes of GST ruling, it is assumed that Lots A, B and C will be sold, and that each supply will be made for consideration.

Reasons for decision: Detailed Reasoning - Question 1: Will the proceeds or profit made on the sale of Lot D constitute assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | Summary: The Commissioner considers that your subdivision activity demonstrates an isolated commercial transaction as set out in Taxation Ruling TR 92/3 Income tax: whether profits on isolated transactions are income (TR 92/3). This is because your purpose in entering into the transaction was to make a profit or gain, and it was entered into in the course of carrying out a commercial transaction. In particular, you oversaw the development works yourself, organised external finance, and were aware of the subdivision potential at the time you acquired the property. The proceeds from the sale of the subdivided Lots will therefore be assessable income under section 6-5 of the ITAA 1997. | Detailed Reasoning - Carrying on a business of property development: As a general principle, profits from property subdivision will either be assessable as ordinary income under section 6-5 of the ITAA 1997, or as statutory income under the capital gains tax provisions in Part 3-1 and Part 3-3 of the ITAA 1997. Where the profit has been made as a result of a taxpayer carrying on a business of property development or entering into an isolated commercial transaction, the profit will be assessable as ordinary income. The question of whether a business is being carried on is a question of fact and degree to be determined on a case-by-case basis. The courts have developed a series of indicators to determine the matter, which are summarised in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? (TR 97/11). Although TR 97/11 specifically refers to primary production, the same principles apply to all businesses. Some indicators of carrying on a business which the courts have considered to be relevant include: • whether the activity has a significant commercial purpose or character • whether the taxpayer has more than just an intention to engage in business • whether there is regularity and repetition of the activity • whether the activity is of the same kind, and carried on in a similar manner, to that of ordinary trade in that line of business • whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit • the size, scale and permanency of the activity, and • whether the activity is better described as a hobby, a form of recreation, or sporting activity. | Detailed Reasoning - Isolated commercial transactions: TR 92/3 provides guidance in determining whether profits from isolated transactions are assessable income. To determine if profits made as a result of an isolated business transaction are assessable income, the most important factors to consider under paragraph 6 of TR 92/3 are whether: • the intention or purpose of the taxpayer in entering into the transaction was to make a profit or gain, and • the transaction was entered into, and the profit was made, in the course of carrying on a business or in carrying out a business operation or commercial transaction. If a transaction satisfies the above elements, it is generally not a mere realisation of a capital asset. | Detailed Reasoning - Taxpayer's intention or purpose: Paragraphs 38-44 of TR 92/3 discuss determining a taxpayer's intention or purpose. The intention or purpose of the taxpayer (of making a profit or gain) is discerned from an objective consideration of the facts and circumstances of the case. It is not necessary that the intention or purpose of profit-making be the sole or dominant intention or purpose for entering into the transaction. It is sufficient if profit-making is a significant purpose. The taxpayer must have the requisite purpose at the time of entering into the relevant transaction or operation. If a transaction or operation involves the sale of property, it is usually necessary that the taxpayer has the purpose of profit-making at the time of acquiring the property. | Detailed Reasoning - Carrying out a commercial transaction: The factors listed at paragraph 13 of TR 92/3 also need to be considered in relation to the property subdivision activities to determine whether they amount to carrying on a business or carrying out a commercial transaction. The factors are: (a) the nature of the entity undertaking the operation or transaction; (b) the nature and scale of other activities undertaken by the taxpayer; (c) the amount of money involved in the operation or transaction and the magnitude of the profit sought or obtained; (d) the nature, scale and complexity of the operation or transaction; (e) the manner in which the operation or transaction was entered into or carried out; (f) the nature of any connection between the relevant taxpayer and any other party to the operation or transaction; (g) if the transaction involves the acquisition and disposal of property, the nature of that property; and (h) the timing of the transaction or the various steps in the transaction. | Detailed Reasoning - Carrying on a business: We have applied the indicators from TR 97/11 to your circumstances and consider that you are not in the business of developing property. This is because there is little repetition or regularity to the activity, it is not planned or organised in a businesslike manner, there is no business plan, it is modest in size and scale, and minimal records are kept. | Detailed Reasoning - Isolated commercial transaction: We have applied the elements from TR 92/3 to your circumstances and determined that the subdivision activity amounts to an isolated commercial transaction. As discussed, TR 92/3 states that it is not the subjective intention or purpose of the taxpayer that is relevant; rather, it is the taxpayer's intention or purpose discerned from an objective consideration of the facts and circumstances of the case. It is not necessary for profit-making to be the sole or dominant intention or purpose for entering into the transaction. A taxpayer may have multiple intentions or purposes and all that is required is that sale for a profit be 'a not insignificant' intention or purpose. It is sufficient that the taxpayer had in mind the 'live option' of selling for a profit when they commenced the development. It is considered that when you purchased the Property, you had at least 'a not insignificant' purpose of subdividing. This is because you were aware of the subdivision potential before you purchased the Property, as the previous owner had already obtained development approval to subdvide. You may also have had other purposes. That is, you may have undertaken the development with dual purposes of holding the Property long term but also selling subdivided Lots short term. In any case, subdividing was at least a 'not insignificant' purpose contemplated by you. The Commissioner therefore considers that your purpose in entering into the transaction was to make a profit or gain. Furthermore, we have applied the factors from paragraph 13 of TR 92/3 as follows: • You are the sole owner of the Property have subdivided it in your capacity as an individual. The subdivision activities were carried out by third-party contractors. No developer was engaged to carry out the subdivision transaction. • You are a self-employed and have been working in your business part-time during the subdivision activities. You have a history and prior experience in buying and selling property as an investment activity. You have also purchased off-the-plan lots and sold them after registration of title. You have not subdivided property before. • You purchased the Property for $XX in XXXX. You estimate that your total subdivision expenses are approximately $XX. The subdivision activity has been funded by a loan from a friend. You sold Lot D for $XX. You have not yet decided whether you will sell the X remaining vacant lots, but you expect that you would sell them for approximately $XX each. • You have created X Lots from the Property, which was originally a single lot, as part of the subdivision activity. The scope of the works included creating an access road, stormwater works, minor road widening, and power connections. The works undertaken have not exceeded what was required as part of the development approval. The works were completed between XXX and XXX XXXX. The titles were registered in XXX XXXX. • The subdivision works have been carried out by contractors. You have engaged a surveyor, civil engineer, solicitor, and other third-party contractors to facilitate the subdivision. • There are no other parties involved in the subdivision project. The people that have been engaged by you are independent third-party professionals. • The Property is zoned as rural residential land and contains a dwelling. The area of the land is X acres, and you have used it as a rental property from acquisition. As part of the subdivision works, the Property was reconfigured into X lots, X of which are vacant land and X which contains a dwelling. You have sold one of the vacant lots. • You acquired the Property in XXX XXXX. The previous owner had already obtained development approval from the local council prior to you acquiring the Property. You applied for operational works in XXX XXXX and obtained approval in XXX XXXX. The subdivision works were completed between XXX and XXX XXXX. You entered into a contract to sell one of the subdivided Lots in XXX XXXX, which settled in XXX XXXX. It is considered that the transaction was entered into and the profit was made in the course of carrying out a commercial transaction. This is because you carried out the transaction in a commercial manner by overseeing the development works yourself, organising external finance, and selling a lot immediately after development works were completed. The Commissioner therefore considers that your subdivision activity amounts to an isolated commercial transaction. Any profit made on the transaction is therefore assessable income under section 6-5 of the ITAA 1997. | Detailed Reasoning - Question 2: Will the gain from the sale of Lot D be treated as a mere realisation of a capital asset and subject to capital gains tax (CGT) under Parts 3-1 and 3-3 of the ITAA 1997? | Summary: Your subdivision activity is not the mere realisation of a capital asset. This is because subdivision would have been a 'live option' at the time you acquired the Property and you had an active role in the activity by overseeing and organising the development works. The proceeds from the sale will therefore not be assessable under Part 3-1 and Part 3-3 of the ITAA 1997. | Detailed Reasoning - Mere realisation of a capital asset: Where profits from property subdivision arise from the mere realisation of a capital asset, the proceeds will be assessable under the capital gains tax provisions in Part 3-1 and Part 3-3 of the ITAA 1997. There are multiple court cases discussing whether property development and subdivision activities are considered to be a mere realisation of a capital asset. In Statham & Anor v Federal Commissioner of Taxation (1988) 20 ATR 228, the taxpayers owned farmland that was used for a time for raising beef cattle. Due to a number of reasons, the taxpayers decided to subdivide and sell the property, and they obtained the necessary approval from the local council. The actual subdivision work was carried out by the local council, although the owners obtained professional advice from an engineering firm. While the owners provided a bond to the council by way of a bank guarantee, they did not borrow any money. The subdivided land was marketed by local real estate agents. No site office was set up to cater for the sale of Lots and no office was set up to conduct the affairs of the owners. The Commissioner argued that the profits should be income according to ordinary concepts on the basis that while the farm was originally acquired by the owners for domestic purposes, the property was later committed to the business of subdivisional land development. It was held that it was erroneous to conclude that because the owners decided not to persist with farming the land but instead sold it by means of subdivision, the proceeds of realisation became taxable. The mere realisation of an asset at a profit did not necessarily render the profit taxable. The profit must arise from the carrying on of a business or a profit-making undertaking or scheme. In this case, the manner by which the owner subdivided and sold the land indicated that the owners were not conducting a business or engaging in a profit-making undertaking or scheme. It was therefore a mere realisation of a capital asset. In Stevenson v Federal Commissioner of Taxation (1991) 22 ATR 56, the taxpayer inherited property in 1953 which was previously used for the family farm. From the 1960's, the taxpayer decided to sell most of the land and engaged a third party to find a buyer. Around this time, the local water authority acquired 26 acres from to taxpayer and used the land to form a lake. The taxpayer decided to take advantage of the lake views and determined the value of the land had increased. In the 1970's, they decided to sell 360 acres to a plantation company but retained 35 acres bordering the lake. In 1975, a third party on behalf of the taxpayer submitted an application to the local council to rezone the 35 acres of land. The water authority objected to the application and imposed strict conditions relating to water supply and sewerage. The taxpayer found he could not engage a developer willing to pay their price without a rezoning approval as a result of these conditions. From 1977, the taxpayer developed the land by themselves by subdividing the land into residential lots in stages. They organised finance and marketing of the subdivision. The subdivided lots were sold from 1980 to 1986. It was held that the extent of the activities and the how the taxpayer went about to realise the land amounted to a business. In distinguishing between a mere realisation and carrying on a business, it was relevant that the owner of the asset undertook the planning and management of the development activities. In Casimaty v Federal Commissioner of Taxation 97 ATC 5135, the Federal Court found the taxpayer acquired the property for primary production purposes, and retained over one-third of the land area for continued use as their residence and to conduct the primary production business after the subdivisions occurred. Apart from the actions taken to approve the subdivision, there was no evidence to suggest a change in the purpose for which the land was held. The taxpayer, for the most part, did not develop the land beyond what was necessary to secure approval of the plans of subdivision or present the lots for sale as individual, vacant blocks. The development activities did not extend to proposing or creating public facilities, although the taxpayer did slash and clear scrub, fill in some creeks and waterholes and change creek-lines to improve the presentation of certain allotments. In reaching the decision, Ryan J found it relevant that the subdivision of the land was undertaken piecemeal, in response to the increasing debt and deteriorating health of the taxpayer, and was not undertaken under a coherent plan to subdivide the property from the outset. In Mitri & Ors v Federal Commissioner of Taxation 2023 ATC 10-695, the taxpayers were children of a land developer. The children owned properties for the purpose of operating a farming business. They subsequently subdivided and sold the property under the advice of their father. The option and sale contracts also contained specific references to zoning. It was the taxpayers' submission that they were unaware of the potential rezoning of the property and that the prospect of rezoning played no part in the purchase decision. Due to the father's long history in purchasing and developing real estate, and the specific references to zoning in the contracts, the taxpayers' submissions were not accepted by the court. It was not accepted that the main purpose of acquisition of any of the properties was to carry out farming. The activity was therefore not a mere realisation of a capital asset. In McCarthy v Federal Commissioner of Taxation 2021 ATC 10-573, the taxpayers demolished the dwelling on a property, subdivided it, and then sold the 2 vacant lots for a profit. The taxpayers argued that the development was of such a small scale it was not a commercial transaction. However, the Tribunal held that it was the sort of transaction that a person in business might undertake and therefore it was a commercial transaction. The taxpayers in this casealso argued that their original intention had been to hold the property as a rental investment to generate income but due to financial reasons they had to change their plan to hold the property long-term. The Tribunal stated that a taxpayer's stated intention must be considered in light of all the evidence and what eventually transpired. It also stated that a profit-making purpose does not have to be the sole or even the predominant purpose for entering into a transaction; it just has to be a not insignificant purpose. The Tribunal concluded that even if the taxpayer originally had another purpose for entering into the transaction, the possible subdivision and sale of the property was also a live option that the taxpayers considered at the time. Therefore, the Tribunal found that the profit made on the sale of the 2 subdivided lots was assessable as ordinary income under section 6-5 of the ITAA 1997. A recent case is Commissioner of Taxation v Morton [2026] FCAFC 31. In this case, the taxpayer owned farmland which was rezoned as residential. The rezoning compounded other existing factors which led to the taxpayer to determine that farming the land was no longer viable. The taxpayer engaged a property developer and sold the subdivided lots as part of a housing estate. The taxpayer had no prior experience in property development. It was found that the taxpayer did not engage in a business of developing land or a profit-making scheme. In particular, the taxpayer did not initially acquire the land with a profit motive and continued farming despite the rezoning. The taxpayer had a minimal role in the development process, did not manage the finances for the development project, and went out of their way to minimise risk from the transaction rather than maximising potential profit. The court held that the fact that the taxpayer engaged a property developer did not transform his activities into a business and that the scale of development did not necessarily indicate a business activity. The transaction was therefore a mere realisation of a capital asset. The court cases discussed above demonstrate that consideration must be given to the following factors to determine whether a property subdivision activity is a mere realisation of a capital asset or a profit-making endeavour: • the purpose or intent of the taxpayer when the property was originally acquired • the conduct of the taxpayer during the development activity, and • the history and experience of the taxpayer. | Detailed Reasoning - The purpose or intent when the property was originally acquired: A taxpayer's stated intention must be considered in light of all the evidence and what eventually transpired. A profit-making purpose does not have to be the sole or even the predominant purpose for entering into a transaction; it just has to be a not insignificant purpose ( McCarthy v Federal Commissioner of Taxation and Mitri & Ors v Federal Commissioner of Taxation ). You stated in your private ruling application that your original intention in acquiring the Property was to use it as a private investment and eventually live in the Property in the future. You have used the dwelling located on Lot A for rental income since acquiring it. At the time that you purchased the Property, you were aware of the subdivision potential. This is because the Property was marketed as having development approval for subdivision at the time that you entered into the contract to purchase it. The Commissioner considers that while you had the predominant intention to use the Property as an investment, the possible subdivision and sale of Lots would have been a 'live option' that you considered at the time that you acquired the Property. | Detailed Reasoning - The conduct of the taxpayer during the development activity: Deciding to sell land by means of subdivision does not necessarily mean that the proceeds from the sale will be revenue. The profit must arise from carrying on a business or an isolated commercial transaction ( Statham & Anor v Federal Commissioner of Taxation ). It is relevant to consider the purpose for acquiring the property, the activities that the taxpayer takes during the development process, and the scale and repetition of the activities. The extent of the subdivision activities and how the taxpayer developed the land is relevant to distinguish a mere realisation from a commercial transaction. Where the owner plans and manages the subdivision activities, such as developing the land themself, selling lots in stages, organising marketing and finance, it is likely that they are carrying on a business or carrying out a commercial transaction ( Stevenson v Federal Commissioner of Taxation ). Although your property development was not large in scale, it is comparable to McCarthy v Federal Commissioner of Taxation. In this case,it was held that the development activity was a commercial transaction as it was the sort of transaction that a person in business might undertake, depsite not being large or complex. Similarly, it is considered that your property subdivision activity is also a transaction that a businessperson might undertake. Your circumstances differ from Casimaty v Federal Commissioner of Taxation , as you had a coherent plan for your subdivision activity and subdivided the whole property at once (as opposed to the piecemeal subdivision undertaken in that case). Additionally, your circumstances differ from Statham & Anor v Federal Commissioner of Taxation . In this case, the local council had undertaken all of the work relating to the subdivision of the property as they managed and controlled the project, engaging the services of the relevant entities to undertake the subdivision activities. Even though you engaged the services of third-party professionals in relation to various aspects of the subdivision, you retained ultimate control as the person overseeing the development. Furthermore, it is considered that your circumstances are materially different from the facts contained in Commissioner of Taxation v Morton . In your case, you had an active role in the subdivision as you oversaw and coordinated the development works, you were aware of the subdivision potential at the time you purchased the property, and you arranged external finance for the development. In particular, you did not engage a developer in relation to the subdivision activity, which was a significant factor in Commissioner of Taxation v Morton . The case can therefore be distinguished from your circumstances. | Detailed Reasoning - The history and experience of the taxpayer: In Mitri & Ors v Federal Commissioner of Taxation , the subdivision activities were carried out under the advice of a relative with experience and history in developing property, which indicated that the transaction was not a mere realisation. The Commissioner accepts that you have no prior experience in subdividing or developing property, but notes that you have a demonstrated history of buying and selling real estate over the last several decades. This includes purchases and sales of approximately XX properties in your capacity as an individual and via related entities, XX of which appear to be held for investment purposes. | Detailed Reasoning - Conclusion: The factors indicating that you are carrying out an isolated commercial transaction outweigh those in favour of the activity being a mere realisation. The Commissioner therefore considers that the subdivided lot will not be subject to the capital gains tax provisions contained under Part 3-1 and Part 3-3 of the ITAA 1997. | Detailed Reasoning - Question 1: Does the subdivision activity of the Property constitute the carrying of on an enterprise under section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | Summary: The subdivision activity undertaken in respect of the Property constitutes the carrying on of an enterprise under section 9-20 of the GST Act as the activity was conducted in the form of an adventure or concern in the nature of trade. | Detailed Reasoning - Legislative application: Subsection 9-20(1) of the GST Act states that: | Detailed Reasoning - 9-20 Enterprises: (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 or 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 ... The meaning of enterprise is considered in Miscellaneous 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), and 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). Section 195-1 of the GST Act defines ' business ' to include ' any profession, trade, employment, vocation or calling, but does not include occupation as an employee. ' This definition is the same as that used in subsection 6(1) of the Income Tax Assessment Act 1936 and in section 995-1 of the ITAA 1997. In determining whether an activity is done in the form of a business, MT 2006/1 confirms that the indicators of carrying on a business articulated in TR 97/11 are relevant for GST purposes. These include, among other things, the existence of a profit-making intention, repetition and regularity of activities, the scale and commercial nature of the activity, and whether the activity is conducted in a systematic and businesslike manner. The term business ordinarily would encompass a trade that is engaged in, on a regular or continuous basis, while an adventure or concern in the nature of trade may be an isolated or one-off transaction and includes a commercial activity that does not amount to a business but which has the characteristics of a business deal. Paragraph 10 of GSTD 2006/6 provides that 'an activity or series of activities' means any act or series of acts that an entity does. The acts can range from a single act or an undertaking, to groups of related activities, to the entire operations of the entity. Therefore, an enterprise can incorporate a single or one-off transaction such as the subdivision and sale of real property. Paragraph 13 of GSTD 2006/6 explains that an adventure or concern in the nature of trade includes a commercial activity that does not amount to a business, but which has the characteristics of a business deal. Isolated transactions with a commercial flavour are included in this category. Such transactions are of a revenue nature. Further, paragraphs 233-261 of MT 2006/1 explain that the distinction between a mere realisation of a capital asset and an adventure in the nature of trade depends on an objective assessment of all the circumstances, including the taxpayer's background and prior activities. Furthermore, paragraphs 262 to 302 of MT 2006/1 specifically consider isolated transactions and sales of real property. It recognises that an activity may take on the character of an enterprise where it is undertaken by a person with relevant experience and expertise, even if the particular project is limited in scale. A taxpayer with an established history of property trading is more readily seen as engaging in commercially driven activities when undertaking development or subdivision works. While you contend that the current subdivision is a one-off, small-scale activity, this claim must be assessed in the wider factual context, including your longstanding history of trading in real property. Over several decades, you have regularly acquired and disposed of property with a view to profit. This history demonstrates a level of commercial complexity, knowledge of the property market, and familiarity with development and disposal processes that goes well beyond that of a passive investor. In this case, the subdivision did not occur in isolation from your broader conduct. Your prior engagement in repeated property transactions supports the conclusion that the subdivision was undertaken with a profit-making purpose, and in a manner consistent with your established approach to property dealings. The fact that the subdivision used existing council approvals or involved works limited to those required to satisfy council conditions, does not, in itself, preclude the activity from constituting an enterprise. An adventure in the nature of trade can still exist where the activities go beyond mere disposal and involve an intended approach to enhancing and realising value. Having regard to all the circumstances surrounding the acquisition and subdivision of the Property, and your extensive and longstanding experience in the acquisition and disposal of real property, the Commissioner considers that the subdivision activity is properly characterised as an activity carried on in the form of an adventure or concern in the nature of trade. While your subdivision activity does not amount to carrying on a business, it has the characteristics of a business dealing, and therefore constitutes the carrying on of an enterprise for the purposes of subsection 9-20(1) of the GST Act. | Detailed Reasoning - Question 2: Will the sales of the subdivided Lot A, Lot B, Lot C and Lot D constitute taxable supplies under section 9-5 of the GST Act? | Summary: The sale of Lot A is an input taxed supply under section 40-65 where the lot is sold together with the existing dwelling and no substantial renovations or further development are undertaken on the land. In these circumstances, GST will not be applicable. The sales of Lots B, C and D are taxable supplies, and GST will therefore apply to those transactions. | Detailed Reasoning - Legislative application: For a supply to be a taxable supply, all conditions in section 9-5 of the GST Act must be satisfied. Section 9-5 provides that: | Detailed Reasoning - 9-5 Taxable supplies: You make a taxable supply if: (a) you make the supply for consideration; and (b) the supply is made in the course of 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. In the present case, the supply of Lot D was made for consideration of $XX. Based on the assumptions, the supplies of Lots A, B and C will also be made for consideration. Accordingly, the requirement in paragraph 9-5(a) of the GST Act is satisfied. As the Commissioner considers that you are carrying on an enterprise, and the supplies of the Lots are made in the course of furtherance of an enterprise that you carry on, the requirement in paragraph 9-5(b) is satisfied. Furthermore, as the Property is located in Australia, the requirement in paragraph 9-5(c) is also satisfied. Although you are not currently registered for GST, you are carrying on an enterprise and your GST turnover meets the registration turnover threshold. You are therefore required to be registered for GST pursuant to section 23-5 of the GST Act, and the requirement in paragraph 9-5(d) is satisfied. There are no provisions in the GST Act that provide for the supply of the Lots to be GST-free. The remaining issue to be determined is whether any of the supplies are input taxed. Where a supply is input taxed, GST is not payable on that supply. In relation to the supply of Lot A which contains a dwelling, Subdivision 40-C of the GST Act is relevant. In particular, section 40-65 provides that the supply of residential, other than commercial residential premises is an input taxed supply. Under section 195-1 of the GST Act: residential premises means 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; (regardless of the term of the occupation or intended occupation) and includes a floating home. Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) further discusses residential premises. Paragraph 9 of GSTR 2012/5 explains that the requirement in section 40-65 that 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' includes a single test that focuses on the physical characteristics of the property to determine its suitability and capability for residential accommodation. Paragraph 46 of GSTD 2012/5 discusses a supply of land with a building. It states that: There is no specific restriction, in the definition of residential premises, on the area of land that can be included with a building. The extent to which land forms part of residential premises to be used predominantly for residential accommodation is a question of fact and degree in each case. A relevant factor in determining this is the extent to which the physical characteristics of the land and building as a whole indicate that the land is to be enjoyed in conjunction with the residential building. The use of the land is not a determining factor in deciding if the land forms part of the residential premises. In your case, Lot A contains a residential dwelling and a shed that is currently leased to tenants on a long-term basis and is occupied for residential accommodation. Lot A, therefore, satisfies the definition of residential premises and the supply of Lot A will be an input taxed supply. Paragraph 47 of GSTD 2012/5 explains that vacant land is not capable of being occupied as a residence or for residential accommodation. This position was stated by Sundberg, Bennett and Nicholas JJ in Vidler v. Federal Commissioner of Taxation [2010] FCAFC 59 at [34]. This is because vacant land, of itself, does not provide shelter and basic living facilities. In this case, Lots B, C, and D are vacant land and do not contain any buildings capable of residential occupation. Accordingly, the Lots do not satisfy the definition of residential premises and are therefore not input taxed supplies. Furthermore, the subdivision and the supply of Lots B, C, and D do not constitute the mere realisation of a capital asset. Rather, the activities were carried out in the course or furtherance of an enterprise, within the meaning of section 9-20 of the GST Act. As all requirements of section 9-5 are satisfied, and the supplies are not input taxed, the supplies of Lots B, C and D are taxable supplies, and GST is payable on those supplies. | Detailed Reasoning - Conclusion: The supply of Lot A, which contains residential premises used predominantly for residential accommodation, is an input taxed supply under section 40-65 of the GST Act. Accordingly, no GST is payable on the supply of Lot A. The supplies of vacant Lots B, C and D satisfy all the requirements of section 9-5 of the GST Act and do not meet the definition of residential premises. As these supplies are not input taxed, the supplies of Lots B, C and D are taxable supplies, and GST is payable on the supplies.