Private ruling: GST and the subdivision of land
Date of advice: 10 March 2016
Published: May 2016

Ruling: Q1: Are you liable for goods and service tax (GST) on the sale of subdivided land? | A1: No. The requirements of a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) include that you are registered or required to be registered for GST. Under section 23-5 of the GST Act you are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold. You are carrying on a farming enterprise. We do not consider your activities in relation to the subdivision of the Land and sale of the vacant lots amounts to an enterprise in their own right. The sale of the Land constitutes the transfer of ownership of a capital asset for the purposes of section 188-25 of the GST Act and will be disregarded when calculating your GST turnover. As the value of the transfer of the Land is excluded from the calculation of your GST turnover, you are not required to be registered for GST pursuant to section 23-5 of the GST Act. Therefore, your supplies of the vacant lots of subdivided land will not be taxable supplies and are not subject to GST.

Relevant facts and circumstances: You are a partnership. You are not registered for GST. You own land (the Land) of approximately X hectares. The Land was acquired in 19XX and you have conducted farming and grazing activities on the Land. You ceased to use the Land for farming purposes in anticipation of the commencement of subdivision works on the Land. You also conduct farming and grazing on other farm land of significantly larger size. Your current and projected GST turnover for the farming enterprise is below the GST registration threshold of $75,000. The Land does not contain residential premises. You are reducing your farming commitments with a view to ultimately retiring from farming activities. The Land is being sold as one of the initial steps in that process. There are no present plans to sell the other farm land. The Land is being subdivided to obtain the best selling price. You have obtained advice from a firm of planners, surveyors, and project managers (the Firm) and it is anticipated the Land will be subdivided into X lots (subdivided land) in X stages. The Firm obtained a planning permit for the subdivision on your behalf. You do not have the skills or experience to undertake the subdivision, nor do you wish to be involved in the subdivision. You have reached an agreement with an experienced relevant contractor (the Contractor) who has represented that they have: • the financial ability to undertake the subdivisional works • the expertise to undertake the subdivisional works, and • for the Contractor to undertake those works and meet the expenses in doing so. You will continue to pay council rates on the Land during the works until sold, and pay the local council $X per lot for further infrastructure required under the agreement covering the subdivision. The Contractor will take all required steps in the subdivision other than legal requirements for you to do something. You and the Contractor will agree on acceptable sales prices for individual lots once they are ready for sale. The subdivided land will be advertised for sale through one or more real estate agencies. You will pay for the services of the Contractor from the proceeds of sale of the subdivided land, paying one half of the net proceeds of sale of each lot (after selling agents' and conveyancing costs) to the Contractor. You are not in partnership with the Contractor and the Contractor will not have any interest in the Land. You have not been involved in any other subdivisions of land. You will only complete the minimum works required by the local government authority to approve the subdivision. There is no business organisation. You have not borrowed any money to finance the subdivision. No buildings will be erected on the Land.

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 | 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, and | A New Tax System (Goods and Services Tax) Act 1999 Division 188.