Edited version of private ruling

Authorisation Number: 1011742389654

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Ruling

Subject: GST and sale of property

Question:

Will the sale of a subdivided property be subject to GST?

Answer

Yes, the sale of the subdivided property will be subject to GST

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 acquired a property with a dwelling.

· You occupied the property as your private residence.

· After a short time it became apparent that the dwelling in its existing state was inadequate for your future needs.

· Your intention was to extend and renovate the property to make it capable of meeting your future needs. However, it became apparent that the dwelling was unsuitable for renovation or extension.

· You made enquiries about demolishing the current dwelling and building a new property, but found that it may cause financial problems.

· You considered the possibility of subdividing the property into 2 lots, selling one and building a new dwelling on the other.

· You submitted a plan to the local council for subdivision of the property into 2 lots and constructing a dwelling on each lot.

· Subsequently, the planning permit was granted.

· The dwellings to be constructed are side-by-side homes, each sharing a wall on the boundary shared by the two subdivided parcels of land.

· Each of the two dwellings is subject to a separate contract with the builder.

· You plan to sell the part of the land not required by you prior to construction of the dwelling, i.e. as an off-the -plan sale.

· You are registered for the goods and services tax (GST)

· Our records state that your main business activity is residential townhouse property development

Reasons for decision

You are liable to remit goods and services tax (GST) on any taxable supplies you make. The term 'taxable supply' is defined in section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act), as follows;

You make a taxable supply if:

a) you make the supply for *consideration; and

b) you make the supply in the course or furtherance of an *enterprise that you *carry on; and

c) the supply is *connected with Australia; and

d) you are *registered, or *required to be registered.

However, the supply is not a taxable supply to the extent that it is *GST-free or *input taxed.

(Asterisks denote terms defined in section 195-1 of the GST Act)

The issue that needs to be determined in this case is whether the sale of the property meets the requirements of section 9-5 of the GST Act,

You supply the property for consideration, the land is connected with Australia and you are registered for GST. Therefore, the requirements of paragraphs (a), (c) and (d) of section 9-5 of the GST Act are satisfied. What remains to be determined is whether the requirements of paragraph 9-5(b) will be satisfied.

The question of whether an entity is carrying on an enterprise is examined in Miscellaneous Tax Ruling MT 2006/1 (MT 2006/1). The ruling examines a number of activities which an entity may carry on, including isolated transactions. In regard to such transactions, paragraphs 262 and 263 of MT 2006/1 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….

Paragraph 265 of MT 2006/1 contains a list of factors which, if present, may be an indication that a business or adventure or concern in the nature of trade is being carried on. The factors are:

· 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 - for example a manager, office and letterhead;

· borrowed funds financed the acquisition or subdivision;

· interest on money borrowed to defray subdivisional costs was claimed as a business expense;

· 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, paragraph 266 of MT 2006/1 states:

266. In determining whether activities relating to isolated transactions are an enterprise….., it is necessary to examine the facts and circumstances of each particular case. This may require a consideration of the factors outlined above, however there may also be other relevant factors that need to be weighed up as part of the process of reaching an overall conclusion….

In your case, a number of the factors listed in paragraph 265 of MT 2006/1 are present. In particular, a change of purpose for which the land is held; a coherent plan for the subdivision of the land, the level of development of the land is beyond that necessary to secure council approval for the subdivision; and buildings have been erected on the land.

The presence of these factors indicates that the sale of the property was carried out in a business-like manner. It is also noted that you are registered for GST, and your main business activity is residential property development.

Based on the information provided, it is our view that the sale of the property will be in the course or furtherance of an enterprise. Hence, the sale of the property meets the requirements of paragraphs 9-5 (a) to (d) of the GST Act.

Further, the supply of the property is not GST-free under any of the provisions of Division 38 of the GST Act or input taxed under Division 40 of the GST Act.

Accordingly, when you sell the relevant property you are making a taxable supply and are subject to GST.

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