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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your private ruling

Authorisation Number: 1012466446513

Ruling

Subject: GST and the sale of developed parcels of land

Question 1

Are you both as joint tenants carrying on an enterprise for A New Tax System (Goods and Services Tax) Act 1999 (GST Act) purposes?

Answer

Yes, you are carrying on a property development enterprise for the purpose of the GST Act when you subdivide your land into a number of blocks.

Question 2.

Is the sale of sub-divided blocks subject to GST?

Answer

Yes, the sale of the vacant land lots, developed from a sub-divided block is subject to GST.

Relevant facts and circumstances

You are not registered for Goods and Services Tax (GST) you do not hold an Australian Business number (ABN)

You own a X hectare property at xx (Property) as tenants in common.

You acquired the property in xx as your primary residence, in the same year, you were granted town planning consent to construct a driving range on the property and to renovate the existing premises on the property.

You have not commenced the development of the commercial driving range.

You have not claimed tax deductions in relation to the development of the property.

In xx, the State Government requested the xx (council) prepare a draft structure plan xx (structure plan)

The structure plan shows Y% of the property was to be rezoned resulting in a reduced or limited use of the land and you considered it would reduce the value of the property.

You sort the advice of a town planner to protect the property from the impact of the structure plan

On xxx, you submitted a development application for a Material Change of Use (MCU) from 'residence' being one lot to 'park residential' zone consisting of a number of lots. The property was zoned 'park residential' therefore the decision to be made by Council was to reconfigure the lots.

Following an appeals process and a number of successive hearings, you were granted a reconfiguration of the initial lot into Z lots for the property on xx

You incurred legal costs in excess of $xxx to have the MCU approved, financed though a combination of sale of rental properties and bank loans.

The subdivision of one lot into Z is subject to obtaining the operation works approval (approval)

You have engaged engineers to undertake the approval application which is expected to be lodged by 20XX.

One of the joint owners is employed by the council and xx is employed in particular role.

You do not have expertise in sub-division or construction and you will engage a full-time project manager to oversee the development of the property into Z park residential blocks including the existing house block (project).

The project will include creating a new road linking xx to the new lots, a new park and a new dam.

The road, park and dam are all compulsory minimum requirements placed on you in order for the proposal to be accepted by the council. The dam is already in existence on the property in accordance with the MCU approval it will be moved to a new position.

You intend to finance the project by selling a number of the vacant blocks to cover the cost of development and to reduce debts incurred.

You intend to use the services of a real estate agent to sell the blocks.

You estimated the sale price of a vacant block to be between $xx and $xx with real estate sales commissions and conveyance costs ranging from $xx to xx for each block.

You do not have a common law partnership in place for income tax purposes.

We have considered the following documents as part of this application:

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 9-10.

A New Tax System (Goods and Services Tax) Act 1999 Section 9-30.

A New Tax System (Goods and Services Tax) Act 1999 Section 9-20

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

Reasons for decision

Question 1

The issue of carrying on an enterprise is one relevant element in determining whether GST applies to a supply. A supply is defined in subsection 9-10(2) (d) of the GST Act includes a grant, assignment or surrender of real property. A supply is only subject GST when all the requirements of section 9-5 of the GST Act are met. This section states:

From the facts presented, you intend to sell three or four vacant lots of land, subdivided from one parcel of land. You intend to sell these lots of land under a standard land contract and the title of each lot will transfer to the purchaser. Therefore, when the transfer of lots occurs the supply will meet the definition of a 'supply' of real property. Furthermore, you will satisfy subsection 9-5(a) and (c) of the GST Act, you intend to supply three to four lots to a proposed purchaser for monetary consideration and the property is located in Australia (subsection 9-25 (4) 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.

Therefore the issues to be addressed here include whether:

(i) Are you carrying on an enterprise? (Subsection 9-5 (b) of the GST Act)

What remains to be considered to be a taxable supply of vacant land is whether you are required to register for GST under subsection 9-5(d) of the GST Act.

(ii) Whether you are required to be registered? (Section 9-5(d) of the GST Act)

You have some choices available to you in creating the entity structure. From the facts provided you own the property as joint tenants in common therefore, you are entitled to form a partnership, as the entity required to be registered for GST. (Refer to paragraph 42-43 of MT 2006/1).

Question 2 - sale of sub-divided blocks

It is the sale of the newly created lots of land that are subject to GST not the subdivision. The mere subdivision of land does not constitute a supply for GST purposes under paragraph 9-10(2)(d) of the GST Act. All that results from the subdivision is that land is held under different titles by the same owner. It is only when that subdivided land is sold that there is a supply.

Therefore, what needs to be considered is whether the supply of the lots being vacant land is a taxable supply. The current Tax Office view on the supply of vacant land is contained in paragraph 99-97 of Goods and Services Tax Ruling 2003/3 (GSTR 2003/3) it states, vacant land that is subdivided from a larger parcel of land that contained residential premises used to make input taxed supplies cannot itself be viewed as having been used solely in connection with making input taxed supplies. Therefore the vacant land, when sold, could not be input taxed under subsection 9-30(4) of the GST Act and is a taxable supply.

It follows that if the vacant land achieves an exclusive price of more than $75,000 the sale of the land will trigger the registration GST turnover threshold and you will be required to register for GST.

Accordingly, when you sell the vacant lots of land you will be making a taxable supply under section 9-5 of the GST Act and the sale will be subject to GST.


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