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Edited version of your written advice

Authorisation Number: 1012720863143

Ruling

Subject: GST and sale of real property

Question

Is GST payable on the sale of the subdivided land (the land)?

Answer

Yes, GST is payable on the sale of the land.

Relevant facts and circumstances

The partnership of A, B, C and D is registered for goods and services tax (GST).

It was established for the sole purpose of subdivision, development and sale of a land located in Australia.

The land is a rural property that was originally used as part of a primary production business run by X. The business ceased in the early 19X0s. There are no residential premises on the land.

When X passed away in 20xx, the land was transferred to one of their children, Y.

In 20xx, Y passed away; and under their will, the land was transferred to their two siblings A and B.

A and B sold a share in the property to C and D with a view of obtaining council approval to subdivide and ultimately sell the land. C and D provided the necessary capital to apply for the approvals and the assist with funding for the subdivision.

The partners have not been previously involved in land development. The subdivision and the subsequent sale is a 'one-off' transaction and will not be an ongoing venture.

The partnership paid for all the expenses incurred for the subdivision. The partnership claimed input tax credits for the GST paid in relation to those expenses.

The partnership has lodged income tax returns each year with nil income. All subdivision costs are capitalised with the base land cost of $x in the partnership balance sheet.

The development of the land was limited to the following:

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 40-65

Reasons for decision

GST is payable on a taxable supply.

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

You make a taxable supply if:

The sale of the subdivided land by the partnership is for consideration and is connected with Australia. The partnership is registered for GST. As such, the requirements in paragraphs 9-5(a), 9-5(c) and 9-5(d) of the GST Act are satisfied. For the purpose of paragraph 9-5(b) of the GST Act, it must be determined whether the sale of the land is made in the course or furtherance of the partnership's enterprise.

Under section 9-20 of the GST Act an enterprise include an activity, or series of activities, done:

Miscellaneous Taxation Ruling MT 2006/1 provides guidance on what constitutes an enterprise.

According to paragraph 234 of MT 2006/1, an adventure or concern in the nature of trade may be an isolated transaction that does not amount to a business but which has the characteristics of a business deal.

In this case, A and B sold a share in the land to C and D in order to establish a partnership that will subdivide, develop and sell the land. The land was accounted for as the partnership asset. Council approval was sought and obtained. Input tax credits were claimed for expenses incurred in the subdivision.

While the subdivision and the subsequent sale of the land is a 'one-off' transaction, it has the characteristics of a business deal. Accordingly, we consider that an enterprise is carried on by the partnership and the sale of the land would be made in the course of carrying on that enterprise. The requirement in paragraph 9-5(b) of the GST Act is satisfied.

As the sale of the land meets the requirements in paragraphs 9-5(a) to 9-5(d) of the GST Act, the sale is a taxable supply unless it is GST-free or input taxed.

Input taxed supply

The partnership submitted that the sale of the subdivided land is an input taxed supply as it was used as part of the primary production business.

Subsection 40-65(1) of the GST Act provides that a sale of real property is input taxed, but only to the extent that the property is residential premises to be used predominantly for residential accommodation (regardless of the term of occupation).

Section 195-1 of the GST Act defines 'residential premises' to mean land or a building that:

Vacant land is not capable of being occupied as a residence or for residential accommodation.

The partnership advised that there are no residential premises on the land. Therefore, subsection 40-65(1) of the GST Act does not apply. The sale of the land is not an input taxed supply.

GST-free supply

There is no provision in the GST Act under which the sale of the land would be GST-free.

Conclusion

As the sale of the land meets the requirements in paragraphs 9-5(a) to 9-5(d) of the GST Act and is neither input taxed nor GST-free, the sale is a taxable supply. Accordingly, the GST is payable on the supply of the land.

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