Private ruling: Goods and services tax and property subdivision
Date of advice: 28 October 2020
Published: December 2020

Ruling: Q1: Will GST be payable on your sale of two vacant lots created from the subdivision of the land at Lot Y? | A1: No. Based on the information provided, your sale of the two vacant lots will be the mere realisation of a private, capital asset. Therefore, the sale will not be in the course or furtherance of an enterprise that you carry on. Hence, GST will not be payable on the sale of the two vacant lots.

Relevant facts and circumstances: Individual A and individual B (you) are not registered for GST as a partnership or individually. On (date), you signed a contract to purchase residential land known as Lot X for amount. The land was said to be suitable for further subdivision if you decided to do so in the future. On (date), your purchase settled. The land was retitled Lot Y. You decided to proceed with the subdivision and on (date) you submitted an application to the local council for subdivision into three lots with a common driveway. The proportion of the original land cost for the two vacant lots you plan to sell is (amount) and (amount) totalling (amount). The shared driveway land cost (amount). You intend to sell the two vacant lots for (amount) each per current market values. You estimate that the lot you are to retain (on which you are building a house for you to live in) will be worth (amount). You purchased the original property for the purpose of living on it and optionally subdividing it to sell two vacant lots, but not for making a profit as such. At the time of purchase, you expected that you might recoup the cost of the land in due course by selling two lots. The principal reason for buying the land was scarcity of land in proximity to central (town).(Amount) was a large outlay for you but land in this proximity to (town) central is scarce. You are selling part of the land for two main reasons: · To make the land parcel more manageable · To pay down debt for the purposes of retirement. You originally entered an agreement to buy the land on (date) knowing that you would have the option of subdividing into three lots in the future. The property then took a (period of time) to settle on (date). In the interim, you have formed the intention to retire but your retirement is dependent upon selling two of the lots. You are unsure whether you would sell in the current financial year. Since you do not yet have a permit from council, it is not certain that you will actually sell in the current financial year. The only unforeseen reason behind selling the two vacant lots is Individual A's decision to retire which will mean that they could not afford mortgage repayments. This decision developed as you approached settlement. Interest in buying the two proposed vacant lots has been generated via word of mouth. You have received generous offers on both proposed vacant lots without going to market. You have received and accepted tentative offers on both proposed lots. Your house build commenced on (date) and is not yet complete. Your application for subdivision was lodged on (date). A permit is yet to be issued. A temporary driveway to your house is able to be upgraded to a common driveway if the proposed permit allows. You borrowed for the purposes of purchasing the land and building a house. The loan component for the land was (amount). The total loan is (amount). Individual B has access to superannuation which should cover costs for the proposed subdivision. You engaged a town planner to make the application for a subdivision permit on your behalf. You will not do any of the subdivision work yourselves. You will arrange the services required if the permit is approved. A promotional estate name will not be used to market the lots for sale. The parties you hire in connection with the subdivision project and sale of the vacant lots will not be related parties to yourselves. You did not draft up a business plan in relation to the subdivision project. You will not set up a business organisation in relation to the subdivision project. You did not consult an accountant or relevant expert to determine how to maximise your return from the subdivision project. You did not acquire additional land to amalgamate with the original property you purchased. The original property was not near the urban fringe of a major city or town when you purchased it. If the subdivision is approved it is expected that all lots will remain residentially zoned. You have not been involved in property development or property subdivision or property trading activities before. You do not have skill, knowledge or experience in property development or property subdivision activities.

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