Private ruling: Property Development
Date of advice: 20 June 2025
Published: 8 September 2025
Ruling period: Income year ended 30 June 20XX | Income year ended 30 June 20XX | Income year ending 30 June 20XX
Date scheme commenced: DD MM 20XX

Ruling: Q1: Is the profit on the sale of Lot 1 (Unit A) and Lot 2 (Unit B) of the Property included in your assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. | Q2: Were the sales of Lot 1 (Unit A) and Lot 2 (Unit B) (the Properties) taxable supplies under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A2: Yes. The property sales were taxable supplies of new residential premises under section 40-65 of the GST Act made in the carrying on of an enterprise in the form of an adventure or concern in the nature of trade pursuant to paragraph 9-20(1)(b) of the GST Act.


Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 Parts 3-1 and 3-3 | Income Tax Assessment Act 1997 section 118-20 | 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 9-40 | 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 40-75 | A New Tax System (Goods and Services Tax) Act 1999 section 188-15 | A New Tax System (Goods and Services Tax) Act 1999 section 188-25 | A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision: Summary: The profit or gain derived from the sale of the units is considered to be a profit from an isolated profit-making commercial transaction and therefore included in your assessable income under section 6-5 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Section 6-10 of the ITAA 1997 states your assessable income also includes some amounts that are not ordinary income, which is assessable as statutory income. There are 3 ways the proceeds from a property development can be treated for taxation purposes: • Assessable ordinary income under section 6-5 of the ITAA 1997 as income from carrying on a business of property development; • Assessable ordinary income under section 6-5 of the ITAA 1997 as income from an isolated commercial transaction with a view to profit; or • A mere realisation of a capital asset, assessable under Parts 3-1 and 3-3 of the ITAA 1997 as statutory income. | Detailed Reasoning - Carrying on a business: Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? (TR 97/11) provides the Commissioner's view on whether a taxpayer is carrying on a business. Although TR 97/11 deals with the issues in determining whether a taxpayer is carrying on a business of primary production, the same principles can be applied to the question of whether a taxpayer is carrying on any type of business including property subdivision and development. Paragraph 13 of TR 97/11 states that the following indicators are relevant in determining whether a taxpayer is carrying on a business: (a) whether the activity has a significant commercial purpose or character; (b) whether there is repetition and regularity of the activity; (c) whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business; (d) 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 (e) whether the activity is better described as a hobby, a form of recreation or a sporting activity. Whether a business is being carried on depends on the impression gained from looking at all the indicators against the case facts and whether these indicators provide the operations with a commercial flavour. | Detailed Reasoning - Isolated commercial transactions: Taxation Ruling TR 92/3: Income tax: whether profits on isolated transactions are income (TR 92/3) provides guidance in determining whether profits from isolated transactions are ordinary income and therefore assessable under section 6-5 of the ITAA 1997. The term 'isolated transactions' in paragraph 1 of TR 92/3 refers to: • those transactions outside the ordinary course of business of a taxpayer carrying on a business, and • those transactions entered into by non-business taxpayers. Whether a profit from an isolated transaction is ordinary income is a question of fact and depends very much on the individual circumstances of the case. Paragraph 6 of TR 92/3 provides that profits from an isolated transaction is generally income when both of the following elements are present: • 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. Paragraph 13 of TR 92/3 outlines the following factors which may be relevant when considering whether an isolated transaction amounts to a business operation or commercial transaction: • the nature of the entity undertaking the operation or transaction; • the nature and scale of other activities undertaken by the taxpayer; • the amount of money involved in the operation or transaction and the magnitude of the profit sought or obtained; • the nature, scale and complexity of the operation or transaction; • the manner in which the operation or transaction was entered into or carried out; • the nature of any connection between the relevant taxpayer and any other party to the operation or transaction; • if the transaction involves the acquisition and disposal of property, the nature of the property, and • the timing of the transaction or the various steps in the transaction. TR 92/3 makes it clear at paragraph 42 that even if a taxpayer did not originally acquire a property with a profit-making intention, the profit made on its eventual sale will be income if the taxpayer later ventured the property into a profit-making commercial transaction: 42. For example, if a taxpayer acquires an asset with the intention of using it for personal enjoyment but later decides to venture or commit the asset either: (a) as the capital of a business; or (b) into a profit-making undertaking or scheme with the characteristics of a business operation or commercial transaction, the activity of the taxpayer constitutes the carrying on of a business or a business operation or commercial transaction carrying out a profit-making scheme, as the case may be. The profit from the activity is income although the taxpayer did not have the purpose of profit-making at the time of acquiring the asset. If a property is entered into a property development sometime after it was acquired, it is the taxpayer's intention at the time the property is committed to the development that must be considered. In considering the taxpayer's intention, 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. TR 92/3 also states that 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. Rather, 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 ( McCarthy v. FC of T [2021] AATA 1511 ( McCarthy ) and McCurry v. FV of T (1998) 39 ATR 121; 98 ATC 4487 ( McCurry )). In McCarthy , the taxpayers demolished the dwelling on a property, subdivided it and then sold the two vacant lots for a profit. The taxpayer's 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 McCarthy also 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 two subdivided lots was assessable as ordinary income under section 6-5 of the ITAA 1997. In McCurry , the taxpayers purchased a property, demolished the existing dwelling on it, and built three townhouses which were placed on the market a year after construction was completed. The taxpayers claimed that their original intention had been to construct townhouses to rent out and that they were only sold because of the financial difficulties they were encountering. The Federal Court in McCurry held that: • The development was a sufficiently businesslike venture to constitute a commercial transaction. • A taxpayer may have more than one intention or purpose in mind when entering into a property development. • When considering intention, the court is entitled to have regard not only to the taxpayer's stated intention but also the surrounding facts and to the events which actually occurred, as those events, by hindsight, can throw light on the considerations the taxpayer had at the time the transaction was entered into. The court stated: 'That which a person does is a guide to that which he had in mind to do'. • Although the taxpayers may originally have had the intention to rent out the townhouses on completion, having regard to all the facts and events that occurred, it was considered that they also had in mind the possibility of selling the developed property at a profit. • The profit on the sale of the townhouses was profit from an isolated commercial transaction and therefore assessable as ordinary income. | Detailed Reasoning - Mere realisation: Where the sale of land is a 'mere realisation', rather than sold in the course of carrying on a business or an isolated profit-making transaction, the sale is on capital account and CGT rules will generally apply. These proceeds are not ordinary income. As stated in paragraph 36 of TR 92/3, the courts have often said that the profit on the mere realisation of an investment will not be income, even where the taxpayer goes about the realisation in an enterprising way. However, where the original asset is transformed, this goes beyond a mere realisation of an investment. The extent of the transformation will be relevant when determining whether the undertaking is profit making in nature. In Whitfords Beach Pty Ltd v. Federal Commissioner of Taxation 79 ATC 4648; (1979) 44 FLR 312, Justice Deane's judgement which was approved on appeal by the Full High Court stated: Thus a goldsmith who sells in his shop his patrimony of a single gold bar does not necessarily receive the proceeds of sale as income merely because he takes advantage of his shop to sell his capital asset more advantageously. On the other hand, the master goldsmith who labours to turn such a gold bar into finely wrought brooches which he displays and sells with his other gold wares, could not be said to receive the whole of the proceeds of sale of those particular brooches as capital merely because the gold from which they had been fashioned had not been acquired by him for the purposes of his business but had been received as a gift from his father. The paragraph above indicates that where the original asset acquired has been transformed so that it no longer retains its original character, the disposal of that asset will go beyond a mere realisation. | Detailed Reasoning - Capital Gains Tax: Profits from the sale of property may be treated as statutory income under the CGT provisions contained in Part 3-1 of the ITAA 1997 as a mere realisation of a capital asset. Section 102-20 of the ITAA 1997 states that a capital gain or capital loss is made only if a CGT event happens. Most CGT events happen in respect of a CGT asset. Real estate property is a CGT asset (section 108-5 of the ITAA 1997). CGT event A1 happens if you dispose a CGT asset. If profit from the sale of property gives rise to both ordinary income and a capital gain, section 118-20 of the ITAA 1997 will apply to reduce the capital gain to the extent that the profit from the sale of the property is otherwise included as assessable income under section 6-5 of the ITAA 1997. Further, Taxation Determination TD 92/135 Income tax: capital gains: is the main residence exemption relevant when the proceeds of sale of a dwelling are treated as income under ordinary concepts? states that where the sale of a dwelling gives rise to income under section 6-5 of the ITAA 1997, that income remains assessable even if a main residence exemption is available for CGT purposes. | Detailed Reasoning - Application to your circumstances: Given the facts in your case, especially the 'one-off' nature of the activity and its relatively modest scale, we do not consider you were carrying on a business of property development. However, the profit will still be assessed as ordinary income under section 6-5 of the ITAA 1997 if it resulted from an isolated commercial transaction which was entered into with a view to making a profit. Although your property development was not large in scale, it is comparable to those in McCarthy and McCurry which were held to be commercial transactions as although they were not large or complex, they were of a sort that a person in business might undertake. Similarly, it is considered that your property development, consisting of the demolition of the existing structure, subdivision of the land, and construction of new buildings, is also a transaction that a business person might undertake. Consequently, your property development was a commercial transaction. As your property development has been determined to be a commercial transaction, it will be assessable as ordinary income if you had a profit-making intention at the time of the transaction. You used the property for private purposes before the development. Therefore, the relevant time to consider your intention is when the commercial transaction commenced, that is, when you committed the property to the development. This happened when you commenced the construction of the new townhouses in MM 20XX with the demolition of the existing dwelling after moving out of it. As discussed previously, 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. Also, it is not necessary for profit-making to be the sole or dominant intention or purpose for entering into the transaction. Rather, as stated in McCarthy and McCurry, 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. That is, it is sufficient that the taxpayer had in mind the 'live option' of selling for a profit when they commenced the development. Your private ruling application stated that your intention for undertaking the development was to hold one unit as an investment property and the other to live in as your family home but that both ended up being sold in the short term due to financial hardship. It stated: • Lot 1 (Unit A) - The intention was to have this as an investment property. The property was rented out but had to be sold due to financial hardship. • Lot 2 (Unit B) - The taxpayers intended to live in this property but could not move in due to financial hardship. This property was also rented out prior to sale. Although your original plan several years before the property was committed to the development, may have been to retain one unit as a long term rental property and the other as your home, intentions can change. As stated previously, the relevant time to consider your intention is when the property was committed to the development in MM 20XX. We have concerns whether at that time you had no thought of the possibility of sale and subsequently you only sold because you were forced to due to financial hardship. Our concerns are due to the following: • It was only after we obtained third party information, which we later confirmed with you, that we became aware Lot 1(Unit A) was first placed on the market in MM 20XX immediately on completion but was then left on the market while being rented out. It was sold X months later. You then agreed to the purchaser's request for an extended settlement period of approximately X months. Therefore, you did not receive the proceeds of sale until XXX after Lot 1(Unit A) was first placed on the market. This is not consistent with your statement that you only decided to sell Lot 1 (Unit A) due to financial hardship. That is, the fact that you were able to keep Lot 1 (Unit A) on the market for X months until you achieved the sale price that was acceptable to you and then were in a financial position to agree to an extended settlement period of X months for the purchaser, does not show that you forced to put Lot 1 (Unit A) on the market in MM 20XX because of financial hardship. There are similarities in this respect to that in McCurry where the Federal Court stated: I have concluded from the whole of the evidence that the taxpayers sold the units because they considered it to be a good time to sell, not because they were forced to do so by financial difficulties, although rising interest rates would have been a factor they took into account. Your private ruling application also states: The taxpayers, who were struggling to bridge the gap between mortgage repayments and rental income coupled with interest rate rises had no option other than to sell Lot 1 (Unit A). This was reiterated in your tax agent's email of DD MM 20XX where they passed on the following statement by you: Struggling to bridge the gap between mortgage repayments and rental income, and anticipating further interest rate increases, we decided to put Lot 1 (Unit A) on the market while it was still tenanted and we continued to stay in a rental. This reason given, that Lot 1 (Unit A) was only sold because you were struggling to bridge the gap between mortgage repayments and rental income, is not consistent with the fact you omitted to inform us of, being that you first attempted to sell Lot 1(Unit A) before it was even made available for rent. You borrowed heavily to undertake the development. This was a factor taken into account by the Federal Court in McCurry to conclude that, contrary to the claims made by the taxpayers, they would have had in mind the possibility of selling the developed property at a profit when entering into the development. The Federal Court stated: The project did not represent an investment of surplus funds and it was likely that, at some stage, the property would have to be sold to repay to the Bank the moneys borrowed. Similarly in your case, the development did not represent an investment of surplus funds. Rather, you still owed the bulk of the amount borrowed on the original purchase of the property and then more than doubled your debt in relation to the property by borrowing to fund all the construction costs bringing the total borrowing to $X,XXX,XXX. As in McCurry , it was likely that at some stage, at least one of the units would have to be sold to repay or pay down the amount owed. And this is what actually occurred with Lot 1 (Unit A) being placed immediately on the market on completion and Lot 2 (Unit B) also being sold in the short term. Your stated intention to hold the units long term must be assessed in light of this. Your private ruling application states that you 'could not move into Lot 2 (Unit B) due to financial hardship'. However, we found from third party information that after completion of the development, you had purchased another property. It was only after we questioned you about this other property that you advised that this new property was your new main residence. Also, it was only at this point that you advised that you did not move into Lot 2 (Unit B) due to Child A changing schools, which is not the reason you provided in your private ruling application. With respect to this new explanation for not moving into Lot 2 (Unit B), it is noted that Child B attended Campus 1 of School X until it was closed and then attended Campus 2 of School X from MM 20XX. Both Child A's new school and Child B's Campus 2 of School X are located north of Lot 2 (Unit B) with Campus 2 of School X being further away. School X announced a couple of years before your property was committed to the development, that their Campus 1 was going to be closed with all the students relocated to their Campus 2 within a few years. Therefore, by the time construction of the units started with the demolition of the existing dwelling in MM 20XX, you would have been aware that Child B would soon be attending school at Campus 2 of School X unless they left School X. If the location of Child A's new school was an issue with living at Lot 2 (Unit B) then given Campus 2 of School X is even further north of Lot 2 (Unit B), at the time Lot 2 (Unit B) began construction you would have realised your children's schooling may impact on being able to live in Lot 2 (Unit B). Also with regards to the sale of Lot 2 (Unit B), your private ruling application states: The rise in cost of living, rent increases for the rented property the taxpayers lived in and interest rises led to delay in mortgage repayments for Lot 2 (Unit B). As a result the taxpayers had to enter a financial hardship arrangement with the bank with a view to selling Lot 2 (Unit B) within X months to relieve their financial pressure. This was reiterated in your tax agent's email of DD MM 20XX where they passed on the following statement by you: We continued to experience rising living costs, increase in rent and interest rates, which led us to delay mortgage repayments and ultimately entering in to a financial hardship arrangement with the bank, with the aim of selling the remaining property within six months. These statements that rent increases for the rented property you lived in, forced you to enter into a hardship arrangement and to sell Lot 2 (Unit B) is contradicted by the fact that you had not lived in a rental property since MM 20XX, many months before Lot 2 (Unit B) being placed on the market in MM 20XX and the hardship agreement being entered into in MM 20XX. Rather than paying rent, you had actually been living for almost X months in your new main residence at Property C before attempting to sell Lot 2 (Unit B). You advised that financial hardship forced you to sell both units. You first put a unit (Lot 1 (Unit A)) up for sale in MM 20XX but the only evidence you have provided for either unit is a short-term hardship agreement entered into with your bank approximately XX months later that placed a moratorium on your loan repayments for a few weeks in relation to Lot 2 (Unit B). There is no evidence that your initial attempt at sale in MM 20XX on completion of the development was forced on you by financial hardship. As noted previously, the fact that you were able to delay sale for a significant period until the market improved and then allowed the purchaser of Lot 1 (Unit A) an extended settlement period demonstrates the opposite, that is, when you first decided to sell in MM 20XX on completion of the development, it was not a decision forced upon you by financial hardship. Although financial considerations were likely a factor in your thinking, it was still a voluntary decision rather than one imposed on you. Given this voluntary decision to sell in the short term was made immediately on the completion of the units, it is considered that this would also have been a course of action you had in mind that you could take when you started construction of the units. This is consistent with the Federal Court's view in McCurry discussed previously, that given the development was financed by borrowings instead of surplus funds, it was likely that the property would have to be sold at some stage to repay the bank and therefore would have been contemplated when the development commenced. You state you were struggling to bridge the gap between mortgage repayments and rental income coupled with interest rate rises and you had no option other than to sell the units. Your loan applications in both MM 20XX and MM 20XX showed large amounts of uncommitted income each month which would be expected to be sufficient to cover increases in interest rates. It is also noted that the loan application in MM 20XX was approximately XX months after interest rates started rising yet still showed a large amount of monthly uncommitted income. As discussed previously, it is not the subjective intention of the taxpayer that is relevant but rather their intention as discerned from an objective consideration of the facts and circumstances of the case. Also, as stated in McCurry and McCarthy , what actually eventuated sheds light on the taxpayer's intention on commencement of the development. Having regard to all the objective facts and circumstances, including the events that transpired, and our concerns noted above in relation to your stated intention, we consider that, when you entered the property into the development by demolishing the existing dwelling in MM 20XX, you had at least a 'not insignificant' purpose of selling the units in the short term. You may also have had other purposes. That is, you may have undertaken the development with dual purposes of holding the units' long term but also selling them short term if you thought it was appropriate at the time. In any case, we believe that selling in the short term was at least a 'not insignificant' purpose contemplated by you when you entered the property into the development. Consequently, your profit on the sale of the units is assessable as ordinary income under section 6-5 of the ITAA 1997. That is, the sale of the developed properties is considered to be an isolated profit-making commercial transaction rather than the mere realisation of an asset. Section 118-20 of the ITAA 1997 will apply to prevent any double taxation by reducing the capital gain made on the sale of the units by the amount assessed as ordinary income. | Detailed Reasoning - Question 2: Were the sales of Lot 1(Unit A) and Lot 2(Unit B) (the Properties) taxable supplies under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | Summary: Your sales of Lot 1(Unit A) and Lot 2 (Unit B) were taxable supplies of new residential premises and you were required to be registered for GST for the relevant periods. | Detailed Reasoning - Detailed reasoning: In these reasons for decision: • unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act); • all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act; and • all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website ato.gov.au | Detailed Reasoning - Taxable supply: Section 9-40 provides that an entity is liable for GST on any taxable supplies that it makes. Section 9-5 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 to the indirect tax zone (Australia); and (d) you are registered or required to be registered for GST. However, the supply will not be a taxable supply to the extent the supply is GST-free (pursuant to Division 38) or input taxed (pursuant to Division 40). The requirements of paragraphs 9-5(a) and 9-5(c) above are satisfied since the Properties were sold for consideration and both are connected with the indirect tax zone, being located in Australia. The questions yet to be determined are: • whether the sales of the Properties were supplied in the course or furtherance of an enterprise carried on by you (pursuant to paragraph 9-5(b)); and • since you are not currently registered for GST, whether you were required to be registered for GST at the relevant time (pursuant to paragraph 9-5(d)). There are no Division 38 provisions under which your sales of the Properties would be GST-free. Division 40 provisions, however, include the supply of certain residential premises which are classed as input taxed, on which no GST is payable. Therefore, we will examine whether: • an enterprise was carried on in relation to the property sales, and • if you were required to be registered for GST; or • the property sales were input-taxed supplies of residential premises (and you were therefore not required to be registered for GST). | Detailed Reasoning - Enterprise: Subsection 9-20(1) provides that the term 'enterprise' includes, among other things, 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; or (c) on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property. The definition of 'carrying on' an enterprise, found in section 195-1 of the GST Act, states: carrying on an enterprise includes doing anything in the course of the commencement or termination of the enterprise. This definition ensures that activities done in the course of the commencement or termination of the enterprise are included in determining whether the activities of the entity amount to an enterprise. In the case of property this can include the acquisition and disposal of assets, such as real estate. 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) contains the Commissioner's view on what constitutes an enterprise for the purpose of eligibility for an Australian Business Number. Paragraph 1 of 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) provides that the guidelines in MT 2006/1 equally apply to the term 'enterprise' as used in the GST Act and can be relied on for GST purposes. 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 undertaking, to groups of related activities, to the entire operations of the entity. An enterprise could therefore incorporate a single or one-off transaction such as the building and sale of real property. Paragraphs 159 to 160 of MT 2006/1 include the following guidelines: 159. Whether or not an activity, or series of activities, amounts to an enterprise is a question of fact and degree having regard to all of the circumstances of the case. 160. It is important that the relevant activity or series of activities are identified in order to determine whether an enterprise is being carried on. This is because one activity may not amount to an enterprise but that activity taken into account with other activities may form an enterprise. All activities need to be taken into account including activities from the commencement to the termination of the enterprise. For further information on commencement and termination activities, see paragraphs 120 to 148 of this Ruling. | Detailed Reasoning - In the form of a business: Paragraphs 170 to 179 of MT 2006/1 list the main indicators of carrying on a business as being: • 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. In your case, your family lived at the Property in the original dwelling for a period of about X years after purchasing it on DD MM 20 XX. Your children attended school in the area local to the Property. Your ownership of the Property at that time was clearly private in nature. However, the decision to redevelop the Property was made shortly after your family started living there, in MM 20XX. Where there is a change of purpose, the tax treatment of property sales can also change. You relocated to rental accommodation in MM 20XX to facilitate the demolition of your former residence and the redevelopment of the Property. Once the decision had been made to demolish the original dwelling, subdivide the block, construct 2 new townhouses on the 2 new blocks, and rent one out, there was 'a change of purpose for which the land [was] held', such as is described at paragraph 265 of MT 2006/1 as being a factor indicative of an 'activity done in the form of a business ...'. A further 'change of purpose' occurred when you decided that instead of moving into Lot 2 (Unit B), you would purchase a new home and you would rent out both townhouses. Your subsequent decision to sell both townhouses, rather than continue to rent them out, represented yet another 'change of purpose'. When construction on the townhouses was completed in MM 20XX, Lot 1 (Unit A) was listed for sale. You subsequently listed Lot 1 (Unit A) for rent in MM 20XX, before it eventually sold in MM 20XX by which time it had been available for rent for around X months. Lot 2 (Unit B) was made available for rent from DD MM 20XX. You subsequently listed Lot 2 (Unit B) for sale in MM 20XX, selling it in MM 20XX, by which time it had been available for rent for around X months. We examined the example given, and the advice provided at paragraph 253 of MT 2006/1, that 'the circumstances behind [a] sale need to be considered'. When viewed in the context of the above facts, we do not consider that your subdivision, redevelopment, and property sales activities constituted an enterprise carried on 'in the form of a business', such as would satisfy paragraph 9-20(1)(a). However, certain isolated transactions of sales of real property are categorised as an enterprise for GST purposes. We will now examine whether your sales of the Properties displayed characteristics indicative of another type of enterprise. | Detailed Reasoning - In the form of an adventure or concern in the nature of trade: Paragraph 234 of MT 2006/1 distinguishes between activities done in the form of a 'business' and those done in the form of 'an adventure or concern in the nature of trade', providing that: • a business encompasses 'trade engaged in, on a regular or continuous basis'. • an adventure or concern in the nature of trade includes 'an isolated or one-off transaction that does not amount to a business, but which has the characteristics of a business deal'. Paragraph 244 of MT 2006/1 explains that an adventure or concern in the nature of trade includes a commercial activity which, while it could not be properly called a 'business', nonetheless exhibits a sufficiently similar commercial flavour that the activity takes on a business-like nature. Such transactions are of a revenue nature; however, the fact that an asset is sold at a profit does not, of itself, result in the activity being commercial in nature. Paragraph 245 of MT 2006/1 refers to 'the badges of trade' which provide 'common sense guidance' in reaching a conclusion on whether a transaction has the characteristics of a business deal and whether an asset is held as a trading (or revenue) asset or an investment (or capital), for either financial investment or personal enjoyment. While an activity such as the selling of an asset may not of itself amount to an enterprise, account should be taken of the other activities leading up to the sale to determine if an enterprise is being carried on. The Commissioner's view on badges of trade in MT 2006/1 includes the following: The subject matter of realisation 247. This badge of trade considers the form and the quantity of property acquired. If the property provides either an income or personal enjoyment to the owner it is more likely to be an investment than a trading asset. ... Supplementary work on or in connection with the property realised 252. Improving property beyond preparing an asset for sale, to bring it into a more marketable condition and gain a better price suggests an element of trade. The circumstances that were responsible for the realisation 253. Trade involves operations of a commercial character. As assets can be sold for reasons other than trade, the circumstances behind the sale need to be considered. For example, a quick resale may have occurred as a result of sudden financial difficulties. Paragraphs 262 to 302 of MT 2006/1 specifically consider isolated transactions of sales of real property, with paragraph 263 providing that the issue to be decided is whether these activities are of a revenue nature (that is, the activities have the characteristics of a business deal) and therefore constitute an enterprise. Where they are not of a revenue nature, then the transaction could be a mere realisation of a capital asset. Activities which are a mere realisation of a capital asset are not a business, or an adventure or concern in the nature of trade, and therefore no enterprise is being carried out. Paragraph 265 of MT 2006/1 outlines some factors which could determine whether the activity is done in the form of either a business or an adventure or concern in the nature of trade, including: • there is a change of purpose for which the land is held; • there is a coherent plan for the subdivision of the land; • borrowed funds financed the acquisition or subdivision; • there is a level of development of the land beyond that necessary to secure council approval for the subdivision; and • buildings have been erected on the land. Further, as flagged previously, according to paragraph 10 of GSTD 2006/6, one-off transactions such as the building and sale of real property can be captured by the paragraph 9-20(1)(b) provisions. In determining whether activities relating to isolated transactions are an enterprise or the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each case. 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. As discussed above, in your case the decision to sell the townhouses signalled 'a change of purpose for which the land [was] held', which is one of the MT 2006/1 paragraph 265 factors indicative of an 'activity done ... in the form of an adventure or concern in the nature of trade'. The remainder of the factors listed at paragraph 265 of MT 2006/1 were also present in that: • you engaged a town planner to draw up the plans for the subdivision and redevelopment of the land, and to apply for permission from the relevant authorities on your behalf; • you obtained new loans from the Bank of Melbourne to finance the redevelopment; • the land was developed beyond what was necessary to secure council approval for the subdivision; and • you erected 2 new buildings on the land. Returning to paragraphs 170 to 179 of MT 2006/1 the following indicators of business-like activity were also present: • a significant commercial activity; • the activity will be profitable; and • the activities are of a reasonable size and scale. When weighing these factors against the final badge of trade, while it was feasible that your financial difficulties in MM 20 XX may have impacted your decision to sell Lot 2 (Unit B), it was also clear that there were other circumstances in play. Significantly, it is relevant to consider your other real estate decisions around this time. Following their completed construction in MM 20XX, you rented out both Properties, listing Lot 2 (Unit B) for rent in MM 20XX and listing Lot 1 (Unit A) for rent in MM 20XX. You subsequently sold Lot 1 (Unit A) in MM 20XX, with settlement occurring on DD MM 20XX. In MM 20XX you and your sibling sold jointly owned property for $X. Settlement occurred on DD MM 20XX. In MM 20XX you purchased Property C for $X. The settlement for Property C occurred on DD MM 20XX and it became your family home from DD MM 20XX. Your refinancing of both units using Financial Institution C investment loans on DD MM 20 XX indicates that your decision not to move into Lot 2 (Unit B) was likely made prior to MM 20XX. Consistent with this intention, Property C was purchased around X months before Lot 2 (Unit B)was listed for sale in MM 20 XX and some X months before Lot 2 (Unit B)was sold in MM 20XX. Therefore, the decision not to live in Lot 2 (Unit B) as your family home pre-dated your DD MM 20XX hardship arrangement with Financial Institution C by at least X - X months. We consider that your sales of the Properties - when viewed through the lens of the demolition of the original premises, subdivision and redevelopment of the land, and construction and sale of the townhouses, together with your other property dealings during the same period - constituted an enterprise that was captured under the broader definition of 'an adventure or concern in the nature of trade', pursuant to paragraph 9-20(1)(b). The paragraph 9-5(b) enterprise requirement being satisfied, we turn now to the issues of 'new residential premises' and GST registration. | Detailed Reasoning - New Residential Premises: Whether GST is payable on a sale of real property will depend on many circumstances. Under section 40-65 the sale of real property is input taxed but only to the extent that the property is residential premises to be used predominantly for residential accommodation. However, the sale of residential premises is not input taxed to the extent that the residential premises are either commercial residential premises or new residential premises, other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998. It is uncontroversial that the Properties were not commercial residential premises, so we will only examine whether they were new residential premises. 'New residential premises' is a specific term used in GST legislation and does not refer to all new residences in the ordinary, non-legal sense. Goods and services tax ruling GSTR 2003/3 When is a sale of real property a sale of new residential premises? (GSTR 2003/3) deals with the circumstances in which residential premises are new residential premises (and are therefore potentially taxable supplies). Subsection 40-75(1) provides that residential premises are new residential premises if they: (a) have not previously been sold as residential premises and have not previously been the subject of a long-term lease; or (b) have been created through substantial renovations of a building; or (c) have been built, or contain a building that has been built, to replace demolished premises on the same land. However, subsection 40-75(2) provides that residential premises are not new residential premises if, for the period of at least 5 years since they were built to replace demolished premises on the same land (pursuant to paragraph 40-75(1)(c), above), the premises have only been used for making supplies that are input taxed - for example, where they have been rented out as residential accommodation for at least 5 years. In your case, the townhouses constructed on the subdivided land have not previously been sold as residential premises and had not previously been the subject of a long-term lease, and therefore satisfy paragraph 40-75(1)(a) of GSTR 2003/3. Further, the townhouses were built to replace the original dwelling that was demolished on the same land, which satisfies paragraph 40-75(1)(c) of GSTR 2003/3. Finally, the Properties are not precluded from coming within the definition of new residential premises by subsection 40-75(2) because neither property was rented out for at least X years. Therefore, the sales of both Properties were supplies of new residential premises. We have established that the paragraphs 9-5(a), (b) and (c) provisions were met when you supplied the Properties. If the final criterion of paragraph 9-5(d), the GST registration requirement, is satisfied, both sales will be subject to GST. We will now assess whether you needed to be registered for GST. | Detailed Reasoning - GST registration: Section 23-5 states that you are required to be registered for GST if: (a) you are carrying on an enterprise; and (b) your GST turnover meets the registration turnover threshold [currently $75,000 for entities other than for non-profit bodies and $150,000 for non-profit entities]. However, section 188-15 provides that an entity does not include in its GST turnover, the following: (a) supplies that are input-taxed; (b) supplies that are not taxable supplies and not made for consideration; and (c) supplies that are not made in connection with an enterprise. Further, section 188-25 requires you to exclude the following when calculating your projected GST turnover: (a) any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours; and (b) any supply made, or likely to be made, by you solely as a consequence of: ­ ceasing to carry on an enterprise; or ­ substantially and permanently reducing the size or scale of an enterprise. For the purposes of section 188-25 a supply is made, or is likely to be made, 'solely as a consequence' where the supply is made only as a result of an enterprise ceasing, or the substantial and permanent reduction in size or scale of an enterprise. Goods and Services Tax Ruling GSTR 2001/7: meaning of GST turnover including the effect of section 188-25 on projected GST turnover (GSTR 2001/7) explains that tangible 'Capital assets' include items that are retained by you for income producing purposes. GSTR 2001/7 provides the following at paragraphs 31, 32 [in part] and 36: 31. The GST Act does not define the term 'capital assets'. Generally, the term 'capital assets' refers to those assets that make up 'the profit yielding subject' of an enterprise. They are often referred to as 'structural assets' and may be described as 'the business entity, structure or organisation set up or established for the earning of profits'. 32. 'Capital assets' can include tangible assets such as your factory, shop or office, your land on which they stand, fixtures and fittings, plant, furniture, machinery and motor vehicles that are retained by you to produce income... ... 36. Over the period that an asset is held by an entity, its character may change from capital to revenue or from revenue to capital. For the purposes of section 188-25 the character of an asset must be determined at the time of expected supply. In your case, and pursuant to section 23-15 and the GST regulations, your GST registration turnover threshold was $75,000 (as you are not a non-profit body). [1] As your supplies of the Properties: • were not input taxed, • were taxable supplies (made for consideration), and • were made in connection with an enterprise, they do not fall under the section 188-15 exclusions from the GST turnover threshold for registration purposes. We have also established that your supplies of the Properties were on revenue account (that is, the Properties were 'trading stock' in a one-off enterprise in the form of an adventure or concern in the nature of trade) and are therefore not categorised as capital assets. This means they do not fall under the section 188-25 exclusions from the GST turnover threshold for registration purposes. Accordingly, you were required to be registered for GST when you sold the Properties. Paragraph 9-5(d) will be satisfied. | Detailed Reasoning - Conclusion: All of the criteria under section 9-5 being satisfied, your supplies of the Properties were taxable supplies. You needed to be registered for GST on account of the property sales and you need to pay GST on both sales. [1] A New Tax System (Goods and Services Tax) Regulations 2019 (Cth) reg 23-15.01.

You are an Australian resident for income tax purposes. You are married to Person A. You have X children. | Neither you nor any related entities have previously undertaken any subdivision activities or any business of property development in the past. | You are not registered for GST. | You are not planning any future subdivision activities. | The locations of the schools your children attended are as follows: (table deleted) | On DD MM 20XX, you purchased the Property for $X in your name only. | At acquisition, the Property consisted of a X-bedroom dwelling built in the 19XXs which was situated on a X square metre block under residential zoning. The zoning has not changed. | You and your family resided at the Property post-acquisition until MM 20XX. | To finance the purchase of the original land and dwelling, you borrowed $X in MM 20XX from Financial Institution A via an owner-occupier mortgage over a XX-year term secured against the Property in your name only. | The subdivision planning process: In MM 20XX, after living at the Property for around X months you decided to demolish the original dwelling and redevelop the Property. At this time, you estimated the market value of the Property inclusive of the original dwelling was approximately $X. | You commenced the subdivision planning process in MM 20XX. The plan was to subdivide the land into two lots, demolish the existing dwelling and build a townhouse on each lot. At this time, you intended for your family to occupy a new X -bedroom townhouse, while renting out a new adjoining X -bedroom townhouse for investment purposes. | You did not receive any professional advice during the planning process. You engaged a town planner to design the new dwellings and obtain the necessary permits. | You funded the miscellaneous costs (professional fees) associated with the subdivision activities with your own funds. You engaged your lawyer to facilitate the subdivision application process. You paid $X for their professional services. | The preliminary planning permit was issued by the council in MM 20XX, subject to conditions. | In mid-20XX, the Council finalised the planning permit to build the 2 new townhouses which would become known as Lot 1 (Unit A) and Lot 2 (Unit B). | The final planning permit was issued on DD MM 20XX with new street address allocations issued for the 2 lots pending completion of the subdivision. | Post subdivision, Lot 1 was X square metres and Lot 2 was X square metres. There was no change in the zoning required to complete the works. | You remained the sole registered owner of the Property after the subdivision was completed. | Construction was due to start in early 20XX but was delayed for a year due to the effects of the Covid-19 pandemic. | Refinance of the original loan and further borrowings: In MM 20XX, you refinanced the initial loan away from Financial Institution A, obtaining an owner-occupier established home loan in joint names with Person A with Financial Institution B for the amount of $X (loan facility B 1). | On DD MM, you and Person A entered into a building contract with Company A (ABN X) | In MM 20XX, you refinanced your existing borrowings with Financial Institution B and applied jointly with Person A for total borrowings of $X as an investment loan. This total amount included the cost of the construction of the townhouses (the construction loan facility B2) and the existing loan facility (loan facility B1). | The loan application showed projected monthly income totalling $X and projected monthly expenditure totalling $X. | The projected monthly income figure included rental income of $ X for the following properties: | In MM 20XX, you refinanced your Financial Institution B borrowings (including borrowings for the original purchase of the Property and construction costs) to Financial Institution C. The joint Financial Institution C loan application with Person A shows that your monthly household 'uncommitted income' was $X. | Both Properties were refinanced separately via investment mortgages. However, you remained the sole legal owner of both Properties. | Construction of units A and B: You engaged Company X as your building contractor. | Construction works commenced in MM 20XX with the demolition of your original dwelling in MM 20XX and were completed in MM 20XX | On DD MM 20XX, the building permit was granted (planning permit number X). | The total cost of construction was $X. | After the block was redeveloped the newly subdivided land and later, the newly constructed townhouses, remained solely in your name. | On DD MM 20XX, the occupancy permit issued to your contracted builder. | By the time construction on the townhouses was completed, mortgage interest rates had started to increase, resulting in higher loan repayments. | Your family did not move back to the Property to live in either unit. You rented out both townhouses to third parties, while you and your family continued to live in rental accommodation. | Rental properties you resided in between MM 20XX and MM 20XX.: In MM20XX, you and your family moved out of the original dwelling into Rental Property A. You paid $X weekly. | In MM 20XX, you moved out of Rental Property A and moved into another property at Rental Property B. You paid $X weekly. You rented this property until DD MM 20XX. | After refinancing both properties, you arranged to sell Lot 1(Unit A). | You advertised Lot 1(Unit A) for sale in MM 20XX. You did not receive any offers, so you made the unit available for rent. On DD MM 20 XX, you entered a lease via Property Management Company A. The lease ran from DD MM 20XX to DD MM 20 XX with a rental amount of $X per month (approximately X per week). | While it was rented out, Lot 1(Unit A) remained on the market, available for sale. A sale contract was entered into for Lot 1(Unit A) on DD MM 20 XX with a sale price of $X and a settlement date listed as DD MM 20XX. Settlement was delayed until MM 20XX as requested by the buyer. | Purchase of Property C: In MM 20XX, you purchased Property C as your main residence. Settlement for this property occurred in MM 20XX and you moved in on DD MM 20XX, when the current tenants' lease expired. | Rental investment properties: On DD MM 20XX, Person A sold a property held solely in their name located in the relevant State. | On DD MM 20 XX, you and your sibling sold a jointly owned property for $X. | On DD MM 20XX, Lot 2 (Unit B) was listed for rent, and you signed a X -month lease on DD MM 20XX Property Management Company A. The lease ran from DD MM 20 XX to DD MM 20 XX with a rental amount of $X per month (approximately $X per week). | Due to the tenants breaking the first lease, you entered into a new X -month lease for Lot 2 (Unit B) on DD MM 20 XX. At the end of the lease term, you provided notice to your tenant to vacate Lot 2 (Unit B) so that you could prepare it for sale. You placed Lot 2 (Unit B) on the market in MM 20XX. | On DD MM 20 XX, Financial Institution C agreed to a hardship arrangement for loan facility C that placed a temporary moratorium on loan repayments between DD MM 20XX and DD MM 20XX while you attempted to sell Lot 2 (Unit B). | On DD MM 20XX, Lot 2 (Unit B) was sold prior to auction for $X. Settlement occurred on DD MM 20XX. | The titles for both Lot 1(Unit A) and Lot 2 (Unit B) were held in your sole name only when they were sold.