Edited version of your written advice

Authorisation Number: 1012748502832

Ruling

Subject: GST and sale of vacant land

Question

Will the goods and services tax (GST) apply to the proposed sale of the vacant land located in Australia by the Trustee for the Family Trust?

Advice

Yes, GST will apply to the proposed sale of the vacant land located in Australia by the Trustee for the Family Trust because, based on the information received, the supply of the vacant land will be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Relevant fact

The trustee for the Family Trust (you) have an Australian business number (ABN) and are not registered for GST. You decided to acquire vacant land located in Australia and signed the contract two years ago. The purchase price for the vacant land is above $75,000 plus GST and settlement of the purchase of the vacant land will be in the next two to three months.

You advise that your motivation to purchase the vacant land at that time was that the land would be likely to appreciate in value over time, particularly if it was rezoned and this made it an attractive investment in the medium to long term.

You state that it is your first investment in vacant land and you are not a property developer and do not carry on a business involving the purchase and sale of vacant land. You do not intend to develop the land and sell it in small lots. You have not considered building houses on the land and selling them.

You advised that you have not undertaken any marketing of the land whatsoever despite the fact that you have secured the land via the purchase contract. This is because you have to await the outcome of the owner's efforts to subdivide the land. Instead potential purchasers were secured with a view to establishing the market price.

You have received unsolicited offers to sell the vacant land and as these offers are attractive you have stated that you are seriously considering them and you will likely accept one of the offers after acquiring the vacant land.

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 23-5

A New Tax System (Goods and Services Tax) Act 1999 Division 188

Reasons for decision

GST is payable on a taxable supply. You make a taxable supply under section 9-5 of the GST Act if:

a) you make the supply for consideration; and

b) the supply is made 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 for GST.

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

All of the above requirements must be satisfied for a supply to be a taxable supply under section 9-5 of the GST Act.

We will now consider whether the proposed sale of the vacant land will satisfy all the requirements in section 9-5 of the GST Act after the settlement of their acquisition in the next two to three months.

Paragraph 9-5(a) of the GST Act

Based on the information received you will satisfy paragraph 9-5(a) of the GST Act as you will receive consideration when selling the vacant land which is a supply for GST purposes.

Paragraph 9-5(b) of the GST Act

Section 9-20 of the GST Act defines 'enterprise' as an activity or series of activities done and includes:

• in the form of a business;

• in the form of an adventure or concern in the nature of trade.

Miscellaneous Taxation Ruling MT 2006/1 provides guidance on what constitutes an enterprise for the purposes of eligibility for registration for an ABN. Goods and Services Tax Determination GSTD 2006/6 extends the application of MT 2006/1 to GST.

Paragraphs 170 to 179 of MT 2006/1 discuss the concept of activities or a series of activities done 'in the form of a business'. Based on the information received your proposed activities in relation to the vacant land that you will be the owner when settlement of the purchase is made will be an isolated transaction and therefore will not constitute activities done in the form of business.

Paragraphs 233 to 261 of MT 2006/1 provide guidance in relation to 'in the form of an adventure or concern in the nature of trade'. Paragraphs 234 and 237 state:

234. Ordinarily, the term 'business' would encompass trade engaged in, on a regular or continuous basis. However, an adventure or concern in the nature of trade may be an isolated or one-off transaction that does not amount to a business but which has the characteristics of a business deal.

237. The term 'profit making undertaking or scheme' like the term 'an adventure or concern in the nature of trade' concerns transactions of a commercial nature which are entered into for profit-making, but are not part of the activities of an on-ongoing business. Both terms require the features of a business deal, see McClelland v. Federal commissioner of Taxation, in which Lord Donovan, delivering the opinion of the majority, said:

It seems to their lordships that an 'undertaking or scheme' to produce this result must - at any rate where the transaction is one of acquisition and resale - exhibit features which give it the character of a business deal. It is true that the word 'business' does not appear in the section; but given the premise that the profit produced has to be income in its character their lordships think the notion of business is implicit in the words 'undertaking or scheme'.

Paragraphs 262 to 270 of MT 2006/1 discuss isolated transactions and sales of real property. Paragraph 270 of MT 2006/1 states:

Land bought with the intention of resale

270. In isolated transactions, where the land is sold that was purchased with the intention of resale at a profit (which would be ordinary income) the commissioner considers these activities to be an enterprise. This would be so whether the land was sold as it was when it was purchased or whether it was subdivided before sale. An enterprise would be carried on in this situation because the activities are business activities or activities in the conduct of a profit making undertaking or scheme and therefore an adventure or concern in the nature of trade.

From the information received, we consider your proposed activities of purchasing and reselling the vacant land constitute activities conducted in the form of an adventure or concern in the nature of trade. This is because the activities of buying and reselling the vacant land once the settlement of the purchase is done in the next two to three months are entered into for profit making and therefore have the characteristic of a business deal. Further, your statement that it is now your intention to resell the vacant land shortly after taking possession of it confirms that the disposal of the vacant land has the characteristics of a sale in the course of an enterprise rather than the disposal of a capital asset.

Accordingly, paragraph 9-5(b) of the GST Act will be satisfied as you will be making the supply in the course of an enterprise that you carry on.

Paragraph 9-5 (c) of the GST Act

The supply of the vacant land will be connected with Australia as the land is located in Australia. Paragraph 9-5(c) of the GST Act will be satisfied.

Paragraph 9-5 (d) of the GST Act

Under section 23-5 of the GST Act an entity is required to be registered for GST if:

a) the entity carries on an enterprise; and

b) the entity's GST turnover meets the registration turnover threshold which currently is $75,000 and $150,000 for non-profit organisation.

From the information received you will be required to be registered for GST because:

• as discussed above you will be carrying on an enterprise when selling the vacant land;

• the vacant land is not a capital asset and therefore the sale price will be included when calculating your current and projected GST annual turnover. As the purchase price of the land will be above $75,000, the sale price will also be above $75,000. In this instance your GST annual turnover will be above the GST registration threshold.

Paragraph 9-5 (d) of the GST Act will therefore be satisfied,

GST-free and input taxed provision

There is no provision in the GST Act that makes a supply of vacant land in Australia GST-free or input taxed.

Summary

As all the requirements in section 9-5 of the GST Act will be satisfied, your proposed sale of the vacant land will be a taxable supply and therefore will be subject to GST.

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