Edited version of your private ruling

Authorisation Number: 1012376825246

Ruling

Subject: GST and sale of land

Question

Will the proposed sale of subdivided surplus land not used in the activities of the club, be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No. The proposed sale of subdivided surplus land not used in the activities of the club will not be a taxable supply under section 9-5 of the GST Act.

This ruling applies for the following periods:

None

The scheme commences on:

Not applicable

Relevant facts and circumstances

You are registered for goods and services tax (GST).

You carry on an enterprise of sport club. .

You decided to sub-divide and sell portion of the land not used in the activities of the club.

You have sub-divided the unused land into several lots of residential land and will sell them at an auction according to the constitution of the club.

The sub-divided lots are situated on the edge of the street and have access to road.

The intention of selling the excess land is to provide more capital cash flow to the activities of your club.

You may sub-divide and sell more land in the future if you require additional funds to the operation of the club.

You have obtained the approval of the council for the sub-division and carried out development as required by the council such as sewerage.

You provided the following additional information:

There is no change of purposes for which the land is held.

You did not acquire any additional land to be added to the original land.

There is no coherent plan for the subdivision as the subdivision will be a one off activity.

You did not borrow any money to fund the subdivision and did not claim any interest paid on borrowed funds as business expenses. You used your own funds to finance the subdivision.

You will only carry out development activities on the subdivided land that are necessary to meet the requirements of the council.

You will not construct any building on the subdivided land prior to the sale.

The land has been included as a business asset in your accounting books.

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 Subsection 9-20(1)

Reasons for decision

You are liable to remit GST on any taxable supplies that you make.

The term taxable supply is defined in section 9-5 of the GST Act. You make a taxable supply if you make the supply for consideration; and the supply is made in the course or furtherance of an enterprise that you carry on; and the supply is connected with Australia and 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.

The supply of subdivided residential land is not GST-free or input taxed under any provision of the GST Act.

In your case, you will make the supply of the subdivided residential land for consideration and the supply will be connected with Australia as the land is located in Australia and you are registered for GST. However, it is necessary to ascertain whether your supply will be made in the course or furtherance of an enterprise that you carry on.

Carrying on an enterprise

Enterprise is defined in subsection 9-20(1) of the GST Act, which states:

An enterprise is 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; or

d) …….

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) provides guidance on the meaning of 'an entity' and 'enterprise' for the purposes of the A New Tax System (Australian Business Number) Act 1999 (ABN Act).

Goods and Services Tax Determination GSTD 2006/6 (GSTD 2006/6) provides that the principles in MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the GST Act.

Paragraphs 262-302 of MT 2006/1 refer to isolated transactions and sales of real property. Paragraphs 262-263 of MT 2006/1 state:

262. The question of whether an entity is carrying on an enterprise often arises where there are 'one-off' 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.

Based on the facts provided, you have not undertaken any subdivision activities in the past and therefore it is considered that the subdivision of surplus land would be a 'one-off' activity undertaken by you. Although you were not engaged in property development activities, the nature of your activities in selling the portion of the land indicates that it was of a revenue nature. However, it is necessary to consider whether the activities undertaken by you are an adventure or concern in the nature of trade.

Paragraphs 264-269 of MT 2006/1 refer to factors that indicate whether the activities undertaken are an adventure or concern in the nature of trade and state:

264. The cases of Statham & Anor v. Federal Commissioner of Taxation ¹⁰⁵ (Statham) and Casimaty v. FC of T ¹⁰⁶ ( Casimaty ) provide some guidance on when activities to subdivide land amount to a business or a profit-making undertaking or scheme. In these cases, farm land was subdivided and sold. Minimal development work was undertaken to meet council requirements and to improve the presentation of certain allotments. On the particular facts of these cases the courts held that the sales were a mere realisation of a capital asset.

265. From the Statham and Casimaty cases a list of factors can be ascertained that provide assistance in determining whether activities are a business or an adventure or concern in the nature of trade…. If several of these factors are present, it may be an indication that a business or an adventure or concern in the nature of trade is being carried on. These factors are as follow:

· 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.

266. In determining whether activities relating to isolated transactions are an enterprise or are the mere realisation of a capital asset, 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. 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.

...

Application of the ATO view to your subdivision of the land

An analysis of the subdivision of residential lots using the factors quoted in paragraph 265 of MT 2006/1 reveals the following:

Was there a change of purpose for which the land was held?

You held this land since 1937 to be used in your club activities and now you have decided to dispose portion of the unused land to fund your capital cash flow for the operations of the club.

Was additional land acquired to be added to the original parcel of land?

No, there was no additional land acquired to be added to the property.

Was the property brought into account as a business asset?

Yes, the property was included as an asset in your accounting books.

Was there a coherent plan for the subdivision of the total property?

No, you did not have a coherent plan other than the present subdivision activity.

Was there a business organisation such as a manager, office and letterheads etc?

No. You have advised that you do not have a business organisation for the subdivision and there is no office, secretary or letterhead in relation to the subdivision activities. However, you will engage agents to auction the subdivided land.

Were borrowed funds used to finance the acquisition and subdivision?

No. You used your own funds to finance the subdivision

Was interest on borrowed money to defray subdivisional costs claimed as a business expense?

No.

Was there a level of development of the property beyond that which was necessary to secure council approval for the subdivision?

No. You will undertake the minimum development activities required to obtain council approval for subdivision of the property.

Will there be buildings erected on the subdivided land prior to sale?

No. You will not erect any buildings on the subdivided land prior to sale.

The above analysis in relation to your subdivision of land indicates that you may not be carrying on an enterprise of property development. Furthermore, the information provided by you does not reveal that several factors listed in paragraph 265 of MT 2006/1 are present.

Therefore, we consider that your proposed subdivision activities and the sale of subdivided lots of land will not be an adventure or concern in the nature of trade or a profit making undertaking or a scheme. It will simply be a disposal of excess land in order to fund the activities of your club.

Accordingly, you will not satisfy paragraph 9-20(1)(b) of the GST Act, as the sale of the subdivided land will not be part of a series of activities undertaken in the form of an adventure or concern in the nature of trade.

The sale of subdivided lots of land will not be a supply made in the course or furtherance of an enterprise that you carry on. Accordingly, the supply will not satisfy the requirements of paragraph 9-5(b) of the GST Act.

Therefore, you will not be making a taxable supply when you sell the subdivided surplus land not used in the activities of the club.

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