1012705122629 | Legal database

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Edited version of your written advice

Authorisation Number: 1012705122629

Ruling

Subject: GST and property subdivision

Question

Are you required to register for GST?

Answer

Relevant facts and circumstances

You purchased a residential property in 20XX.

The property is your principle place of residence and the house and garden make up X per cent of the total property. The remaining portion of the property is flood zone and best described as paddock.

You have obtained development approval from the local council to subdivide a portion of the garden into a number of blocks.

You intend to sell the subdivided lots through a real estate agent.

You did not purchase the property intending to subdivide however due to recent financial pressures you have decided to downsize the size of your property and use the proceeds to pay debts.

You are using the equity in your mortgage to fund the subdivision.

You have not engaged a developer to undertake the subdivision but are managing it yourself and the works being undertaken are not beyond the amount necessary under the development approval.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 23-5

Reasons for decision

Summary

You are not required to register for GST as the sale of the subdivided lots is not in the course or furtherance of an enterprise that you carry on.

Detailed reasoning

Under section 23-5 of A New Tax System (Goods and Services Tax) Act 1999 (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 (currently $75,000).

The issue to be decided is whether your sale of the subdivided lots is an activity done in the form of an adventure or concern in the nature of trade and therefore you would be considered to be carrying on an enterprise, as opposed to the mere realisation of a capital asset.

Miscellaneous Tax Ruling MT 2006/1 provides guidance on the meaning of enterprise and paragraphs 262 to 302 in particular provide guidance on the whether you are carrying on an enterprise when undertaking an isolated or 'one-off' real property transaction.

Factors that provide assistance in determining when activities to subdivide land amount to an enterprise as listed in MT 2006/1 paragraph 265 have been taken from the legal cases Stratham & Anor v. Federal Commissioner of Taxation 89 ATC 4070 and Casimaty v FC of T 97 ATC 5135. These factors are:

• a change in purpose for which the land is held;

• the purchase of additional land to be added to the original parcel of land;

• the 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 - e.g a manager, office and letterhead;

• borrowed funds financed the acquisition or subdivision;

• interest on money borrowed was claimed as a business expense;

• there is a level of development beyond that necessary to secure council approval; and

• buildings have been erected on the land.

In your case you purchased a family home and there is no change of purpose as it remains your home. You have not purchased any additional land in undertaking the subdivision and the works being undertaken are only that which are necessary under the development approval. You will not be erecting buildings on the lots and the funds to undertake the subdivision have been obtained by accessing the equity in your home.

After considering these factors and the information provided, we consider that the selling of the subdivided lots is a mere realisation of a capital asset which does not amount to carrying on an enterprise for GST purposes. As such you are not required to be registered for GST.

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