Private ruling: GST - subdivisions
Date of advice: 21 May 2024
Published: 1 July 2024
Ruling period: Any tax period ending on or after 1 July XXXX.
Date scheme commenced: 1 July XXXX

Ruling: Q1: Will you be making taxable supplies under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 when you sell the subdivided properties? | A1: 

Relevant facts and circumstances: In XXXX, you acquired the property located at XXXX. The property contained an existing house and was your primary residence for over 20 years. You are currently receiving income for care and treatment. You are not registered for GST. You engaged contractors perform works on the property. The builder did not complete the project and part of the home was left in an unfinished state. The home fell into a state of significant disrepair and repairing the damage was not a financially viable option. Due to the state of the property, your deteriorating health and financial position, you decided to demolish the building and subdivide the property into two lots. You engaged a company to demolish the building and subdivide the property. At the time, you intended to sell one lot and build a house on the remaining lot in which you would reside. Demolition and subdivision of the property cost approximately XXXX. In late 2023, you re-evaluated your financial circumstances and it was no longer viable to build a home on one of the lots. As a result, you decided to sell both lots. The lots are expected to be sold for XXXX each. You have not subdivided or developed land or property in the past. You own another property, which you use as a rental.

Relevant legislative provisions: Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 | Section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999

Reasons for decision: Summary: You make a taxable supply, and are therefore liable to the GST, under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) if: • you make a supply for consideration (payment); and • the supply is made in the course or furtherance of an enterprise (business) that you carry on; and • the supply is connected with the indirect tax zone (Australia); • you are registered, or are required to be registered, for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. The sale of the subdivided properties will be for consideration as they will be sold in return for payment. The sales will be connected with the indirect tax zone as the properties are located in Australia. If a supply is not made in the course or furtherance of an enterprise that is carried on by the supplier, it is not a taxable supply, and is therefore not subject to GST. An enterprise is defined by section 9-20 of the GST Act to include (amongst others) an activity or series of activities done: • in the form of a business, or • in the form of an adventure or concern in the nature of trade. 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) explains the meaning of 'enterprise' and, at paragraphs 170 to 179 discusses factors to consider when determining whether an activity or series of activities are done in the form of a business. Paragraph 178 of MT 2006/1, with reference to Taxation Ruling 97/11 Income tax: am I carrying on a business of primary production lists indicators of carrying on a business: • a significant commercial activity; • an intention of the taxpayer to engage in commercial activity; • an intention to make a profit from the activity; • the activity will be profitable; • the recurrent or regular nature of the activity; • the activity is systematic, organised and carried on in a business-like manner and records kept; • the activities are of a reasonable size and scale; • a business of product; and • the entity has relevant knowledge or skill. Paragraph 179 of MT 2006/1 states that there is no single test to determine whether a business is being carried on. 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. Your actions in relation to the subdivision and sale of the properties do not amount to that of carrying on a business. You purchased the property as your primary residence and used the property for residential accommodation for over 20 years. Your activities are not significant commercial activity, nor was there an intention by you to engage in those activities in a systematic, organised and business-like manner. Paragraph 234 of MT 2006/1 provides that 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. Paragraphs 243 to 257 of MT 2006/1 discuss the characteristics of trade, including the badges of trade as referred to in a number of judicial decisions: • the subject matter of the realisation; • length of period of ownership; • frequency or number of similar transactions; • supplementary work on or in connection with the property realised; • circumstances that were responsible for the realisation; • motive. Paragraph 262 of MT 2006/1 acknowledges that the question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions. Paragraph 263 continues, stating that the issue to be decided is whether the activities being conducted are an enterprise in that they are of a revenue nature as they are considered to be activities of carrying on a business or an adventure or concern in the nature of trade (profit making undertaking or scheme) as opposed to the mere realisation of a capital asset. Your activities in relation to the property do not amount to an adventure or concern in the nature of trade. The demolition and subdivision of the property were undertaken as a result of the property becoming unliveable, and your motive to generate funds was to cover your healthcare, and your financial obligations. It was not viable for you to repair the property, but rather, the circumstances were such that it would be more beneficial to demolish the building on the property, subdivide it into two lots and sell the lots as vacant land. The sales of the two properties are not made in the course or furtherance of an enterprise that you carry on. Also, as you are not carrying on an enterprise, you are not permitted to be registered for GST. As such, you are not making a taxable supply when you sell those properties and GST is not payable on the supplies.