Private ruling: GST and sale of property
Published: March 2013

Ruling: Q1: Are you required to register for an Australian Business Number (ABN) for the sale of the property (the property) either wholly or in sub-divided lots? | A1: No

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. · You are an individual and are not registered for GST. · You purchased a property in the early 1980's. · A residence was constructed on the property and this is your principal place of residence. · There has been no major capital improvement or development on the property. · You intend to sell the property as you find it too large to manage at your age. · The current zoning has a potential for minor sub-division. · You plan to apply to the local council for the possibility to further sub-divide the land into smaller blocks as the market response to your sale is that the property is to large to be sold in one piece or even a minor number of smaller lots. · The property may still be sold on one title. · You do not intend to further develop the property.

Relevant legislative provisions: All references are to the A New Tax System (Goods and Services Tax) Act 1999 : Section 9-5 | Section 9-20 | Section 23-5 | Income Tax Assessment Act 1997 Section 15-15 | A New Tax System (Australian Business Number) Act 1999 Section 8

Reasons for decision: Summary: You are not required apply for an Australian Business Number (ABN), nor register for GST, consequently the sale of the property is not a taxable supply. This means you do not have to charge GST for the sale of the property either wholly nor sub-divided. | Detailed Reasoning - Detailed reasoning: The A New Tax System (Australian Business Number) Act 1999 (ABN Act) provides who is entitled to an ABN. Section 8 of the ABN Act states: | Detailed Reasoning - 8 Are you entitled to an ABN: (1) You are entitled to have an Australian Business Number (*ABN) if: (a) you are *carrying on an *enterprise in *Australia; or (b) in the course or furtherance of carrying on an enterprise, you make *supplies that are *connected with Australia. Therefore what needs to be considered is if you are carrying on an enterprise when you sell the property either on a single title or with the sub-divided lots. | Detailed Reasoning - Enterprise: Miscellaneous Tax 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) provides guidance on the meaning of 'enterprise' for GST purposes. Paragraph 149 of MT 2006/1 provides that 'Enterprise' is defined in section 41 to have the meaning given by section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The definition of an enterprise provided in section 9-20 of the GST Act includes (amongst other things) 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; or Paragraph 159 of MT 2006/1 provides that whether or not an activity constitutes an enterprise is a question of fact and degree depending on the circumstances of each individual case. In your case we consider the sale of the property is not done in the form of a business and is not repetitive but is an isolated transaction. For isolated transactions and sales of real property, the issue to be decided is whether the activities are an enterprise, in that they are of a revenue nature, as opposed to the mere realisation of a capital asset. Paragraph 262 and 263 of MT 2006/1 examines isolated transactions and sales of real property and state: 262. The question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions. 263. The issue to be decided is whether the activities 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. Certain factors listed in paragraph 265 of MT 2006/1 can be used as indicators of whether or not there is an activity done in the form of a business or in the form of an adventure or concern in the nature of trade. These factors include whether: · there is a change of purpose for which the land is held; · additional land is acquired to be added to the original parcel of land; · the parcel of land is brought into account as a business asset; · there is a coherent plan for the subdivision of the land; · there is a business organisation; · borrowed funds financed the acquisition or subdivision; · interest on borrowed to defray subdivisional costs was claimed as a business expense; · there is a level of development of the land beyond that necessary council approval for the subdivision, and · buildings have been erected on the land. No single factor will be determinative. Rather it will be a combination of factors that will lead to a conclusion as to the character of the activities. From the information provided, there are several events which we consider that the sale of the property is not in the course of an enterprise and no more than mere realisation of capital assets. Factors which lead to this conclusion are as follow: · You purchased the land in the early 1980's. · A residence was constructed on the property and this is your principal place of residence. · There has been no major capital improvement or development on the property. · The current zoning has a potential for minor sub-division. · You plan to apply to the local council for the possibility to further sub-divide the land into smaller blocks as the market response to your sale is that the property is to large to be sold in one piece or one piece or even a minor number of smaller lots. · No additional land is acquired to be added to the original parcel of land. · There is no business organisation; and · You do not intend to further develop the land. Paragraphs 291 to 302 of MT 2006/1provides examples similar to that which you are contemplating. They state: Example 33 291. Ursula and Gerald live on a 2.5 hectare lot that they have owned for 30 years. 292. They decide to sell part of the land and apply to subdivide the land into two 1.25 hectare lots. The survey and subdivision are approved. They retain the subdivided lot containing their house and the other is sold. 293. Ursula and Gerald are not carrying on an enterprise and are not entitled to an ABN in respect of the subdivision as the subdivision and sale are a way of disposing of some of the land on which their home is situated. It is the mere realisation of a capital asset. Example 34 294. A number of years ago Elsie and Karin purchased some acreage on which to keep their horses, which they rode on weekends. Karin now accepts a job overseas and they decide to sell the land. 295. They put the land on the market with little success. The local real estate agent then advises that it would be easier to sell the land if it was subdivided into smaller lots. They arrange for a development application to be lodged with the local council and obtain approval to subdivide the land into nine lots. Elsie and Karin arrange for the land to be surveyed. The land has a road running along its boundary and has some existing services such as electricity. Only minimal activity is required to subdivide the land. 296. Elsie and Karin are not entitled to an ABN. The sale is not considered to be an enterprise and is the mere realisation of a capital asset. Example 35 297. Oliver and Eloise have lived on a rural property, Flat Out for the last 30 years. They live a self-sufficient lifestyle. As a result of a number of circumstances including their advancing years, Oliver's deteriorating health, growing debt and drought conditions they decide to sell. 298. Oliver and Eloise put Flat Out on the market and are unable to find any buyers. They then receive advice from the real estate agent that they may be able to sell smaller portions of it. They initially arrange for council approval to subdivide part of Flat Out into 13 lots. They undertake the minimal amount of work necessary and sell the lots. They continue to live on the remaining part of their property. 299. A few years later Oliver and Eloise decide to sell some more land to meet their increasing debt obligations. They arrange for council approval to subdivide another part of Flat Out into four lots. Again they undertake the minimal amount of work necessary to enable the lots to be subdivided and arrange for the real estate agent to sell these lots. 300. Three years later Oliver's and Eloise's personal and financial circumstances are such that they again decide to sell some more land. They arrange for further council approval to subdivide part of their remaining property into three lots. Again they undertake the minimal amount of work necessary to enable the lots to be sold and arrange for the real estate agent to sell the lots. 301. Over the years involved Oliver and Eloise have subdivided 30 % of Flat Out. They continue to live on the remaining part of their property. 302. Oliver and Eloise are not entitled to an ABN as they are not carrying on an enterprise. They are merely realising a capital asset. In this example the following factors are relevant : · There is no change of purpose or object with which the land is held - it has remained their home. · There is no coherent plan for the subdivision of the land - the subdivision has been undertaken in a piecemeal fashion as circumstances change. · A minimal amount of work has been undertaken in order to prepare the land for sale. There has been no building on the subdivided land. The only work undertaken was that necessary to secure approval by the council for the subdivision. On the basis of these factors taken in combination, we consider that there is not a significant commercial component in your activities, and the extent of the activities is merely the realisation of a capital asset. Therefore, you are considered not to be carrying on an enterprise as defined in section 9-20 of the GST Act. Hence, you are not required to apply for an ABN nor be required to register for GST. Based on the facts and information you provided and your current circumstances, where the sale of the property is on a single title this would constitute the sale of an individual asset, in this case the sale of your property does not constitute carrying on an enterprise. However where there is sub-division and substantial development the decision may differ based on fact and degree. Paragraphs 284 to 287 of MT 2006/1 provides an example of subdivision of land that is an enterprise. Example 31 284. Prakash and Indira have lived in the same house on a large block of land for a number of years. They decide that they would like to move from the area and develop a plan to maximise the sale proceeds from their land. 285. They consider their best course of action is to demolish their house, subdivide their land into two blocks and to build a new house on each block. 286. Prakash and Indira lodge the necessary development application with the local council and receive approval for their plan. They arrange for : · their house to be demolished ; · the land to be subdivided ; · a builder to be engaged ; · two houses to be built ; · water meters, telephone and electricity to be supplied to the new houses ; and · a real estate agent to market and sell the houses. 287. Prakash and Indira carry out their plan and make a profit. They are entitled to an ABN in respect of the subdivision on the basis that their activities go beyond the minimal activities needed to sell the subdivided land. The activities are an enterprise as a number of activities have been undertaken which involved the demolition of their house, subdivision of the land and the building of new houses.

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