Edited version of your written advice

Authorisation Number: 1012766187917

Ruling

Subject: Goods and services tax (GST) and sale of land

Question

Is GST payable on the sale of the (number) vacant subdivided lots created from the E property?

Answer

No.

Relevant facts and circumstances

You and your spouse (X) and your children have for many years lived in a certain area on small acreage properties.

In a certain year, you and X purchased a (number) acre property at a particular location ("the A property"). The home on this property was transported there in a certain year previously being located on land at a particular address. The home was lovingly restored over many years by the family.

In a certain year, the A property was sold. The sale was precipitated by an unrelated company going into liquidation in a certain year. X's business was a large subcontractor to the unrelated company and as a result of the liquidation of the unrelated company, you and X were left with a debt of around (amount). You and X entered into a part X personal insolvency agreement with your creditors.

Between a certain year and a certain year, you and X lived on a (number) acre property at a certain address (the "B property").

In a certain year, you and X bought a (number) acre property in a certain location ("the C property") and lived there for a period of approximately (number) years before selling the property in a certain year.

In a certain year, you purchased a property at a certain location ("the D property"). Your and X's intention was to retire to the area and live in the property and this was facilitated by the fact that the family business had recently been sold and you and X were, in effect, semi retiring (the family held various business and property investments that would provide an income stream).

Your and X's children remained in a certain region.

The intention to retire to a certain area was however frustrated due to personal problems of your child (then a certain age). You and X were required to spend an increasing amount of time in the region providing support to your child who was experiencing personal problems.

You and X were frequently required to travel between the D property and the region where you stayed with another child in a certain location (near a certain location). Your trips to the location became more frequent and of longer duration as your child's personal problems began to increasingly impact the other children and extended family.

In a certain year, you and X resolved to sell the D property having accepted that a return to a certain location was required if you were to best support your child in dealing with their personal problems.

For most of a certain period, you and X stayed with a certain child at a certain location as you provided support to your child with the personal problems.

As it was not practical to continue to stay at another child's home, on a certain date, you purchased a (number) hectare (15 (number)) property at a certain address ("the E property") that contained an existing dwelling (Note - the location is in close proximity to another location). Consistent with your previous family homes in the certain area, a major attraction of the E property was the surrounding land.

The E property became yours and X's principal place of residence.

Your child with the personal problems lived with you and X at the E property soon after moving as you attempted to deal with their personal problems.

You commenced making renovations to the E property soon after moving as it was your intention that this would be the long term family home. Renovations undertaken included bedrooms, bathrooms, kitchen, painting (inside & out) extension to rear of house for a games room, alfresco etc.

On a certain date, a full set of architectural drawings/plans were drawn up for an extension to the front of the house, garage, car port and shedding. The budget for the above work was (amount) - (amount) and the architect was paid (amount) for the designs.

On a certain date, you learnt that the A property was soon going to be back on the market. As you and the family had an affinity with the property, its potential re-acquisition and the related prospect of having to dispose of the E property became a possibility.

In order to provide funds to purchase the A property, the sale of the E property would be necessary. As you and X were not familiar with subdivision and had not previously undertaken such an activity, a consultant was engaged to facilitate the application to council. You were aware that the former owners of the E property had unsuccessfully sought subdivision approval and thus the prospect of success was considered low. On this basis, renovations continued to the property with the view it would be your long term residence.

On a certain date, the A property officially came on the market with an advertised price of (amount).

On a certain date, an application for a planning permit to subdivide the E property into (number) lots of approximately (number) hectares ((number) acres) each was lodged with the local council.

With the increased likelihood of the A property being able to be acquired, the realisation of the E property became a priority (as the funds would be needed to finance the A property acquisition). On this basis, a real estate agent was engaged to sell land titles that would be created in the event that the subdivision was approved.

On a certain date, you purchased the A property for (amount). Settlement took place on a certain date.

On a certain date, permission to subdivide the E property was granted by the council subject to the condition that certain works be undertaken including external carriage way alterations, internal roads, fire services, water supply, power supply, gas supply, telecommunications, sewer, fencing, drainage, etc.

The works associated with the subdivision will be strictly limited to those mandated by the council.

No buildings will be erected on the vacant land prior to the sale.

You will have no personal involvement in the works to be undertaken to prepare the lots for sale. Rather, X may assist in liaising with the contractors that will undertake the required activities.

You will have no site office on the land.

Inquiries regarding the sale of the land were handled by the local real estate agency appointed to oversee the marketing and sale of the allotments.

You will not have any business organisation, manager, office, secretary or letterhead.

There was no promotional estate name.

It will be necessary to borrow funds to undertake the required subdivisional works

You do not intend to bring the E property into account as a business asset or to claim any interest expense deductions.

No additional land was acquired to add to the (number) acre E property to increase its marketability.

The (number) vacant lots have been sold (all sales were conditional on the plan of subdivision being approved) for between (amount) and (amount) each. The proceeds received were used to fund the purchase of the A property and to pay for the subdivision costs. The certain lot containing the main residence was sold on a certain date after you and X had moved back to the A property on a certain date.

Neither you nor X have been involved in the subdivision and sale of land in the past. All previous small acreage properties owned have been sold as a single title. You have no plans to carry on other property subdivisions in the future.

You had no profit making intention upon acquisition of the E property. The land was acquired as a principal place of residence of yours and X's and has been used for that purpose. It was only when the A property came on the market that you considered selling the E property.

You purchased the E property for the primary purpose of being close to your child with the personal problems who lives with you and X as you attempt to get their life back on track. It has now been sold so that you can have the necessary funds to purchase the A property that you had your heart set on once learning that it was on the market.

The E property is not used in connection with any GST registered enterprise carried on by you or X.

Neither you nor X is registered for GST for any purpose.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

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

Reasons for decision

Summary

GST will not be payable on your sale of the vacant lots because they will be the mere realisation of a private investment asset.

Detailed reasoning

GST is payable on taxable supplies.

You make a taxable supply if you meet the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states:

You make a taxable supply 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.

However, the supply is not a *taxable supply to the extent that it is

*GST-free or *input taxed.

(*Denotes a term that is defined in section 195-1 of the GST Act)

Section 9-20 of the GST Act defines enterprise to include:

• an activity or series of activities done in the form of a business (paragraph 9-20(1)(a)); and

• an adventure or concern in the nature of trade (paragraph 9-20(1)(b)).

Miscellaneous Taxation Ruling MT 2006/1 provides guidance on the meaning of enterprise for ABN purposes. Goods and Services Tax Determination GSTD 2006/6 provides that MT 2006/1 can be relied on for GST purposes.

Paragraph 234 of MT 2006/1 discusses the terms 'business' and 'adventure or concern in the nature of trade'. It states:

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.

Paragraph 244 of MT 2006/1 discusses adventures or concerns in the nature of trade and sales of private assets. It states:

244. An adventure or concern in the nature of trade includes a commercial activity that does not amount to a business but which has the characteristics of a business deal. Such transactions are of a revenue nature. However, the sale of the family home, car and other private assets are not, in the absence of other factors, adventures or concerns in the nature of trade. The fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature.

Paragraphs 258 and 259 of MT 2006/1 discuss trading assets and investment assets. They state:

258. United Kingdom cases categorise assets as either trading assets or investment assets. Assets purchased with the intention of holding them for a reasonable period of time, to be held as income producing assets or to be held for the pleasure or enjoyment of the person, are more likely not to be purchased for trading purposes.

259. Examples of investment assets are rental properties, business plant and machinery, the family home, family cars and other private assets. The mere disposal of investment assets does not amount to trade.

In accordance with paragraph 247 of MT 2006/1, if a property provides either an income or personal enjoyment to the owner it is more likely to be an investment than a trading asset.

In accordance with paragraph 254 of MT 2006/1, an intention to resell an asset at the time of acquisition may be an indicator of the resale being an adventure or concern in the nature of trade.

Paragraphs 262 to 266 discuss one-off and isolated real property transactions. They state:

262. The question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' 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. (In an income tax context a number of public rulings have issued outlining relevant factors and principles from judicial decisions. See, for example, TR 92/3, TD 92/124, TD 92/125, TD 92/126, TD 92/127 and TD 92/128.)

264. The cases of Statham & Anor v. Federal Commissioner of Taxation (Statham ) and Casimaty v. FC of T ( 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 (a profit-making undertaking or scheme being the Australian equivalent, see paragraphs 233 to 242 of this Ruling). 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 follows:

· 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.

In the case, Stevenson v. Federal Commissioner of Taxation, the high level of personal involvement of a property owner in the subdivision of their land was considered an indicator that the owner was carrying on a property subdivision business.

Paragraphs 294 to 296 of MT 2006/1 give an example of a subdivision of land that was held by the owner as a private capital asset. The number of lots created from the subdivision was more than the number of lots to be created in your subdivision. The owner in the example is not regarded as carrying on a property subdivision enterprise. Paragraphs 294 to 296 of MT 2006/1 state:

294. A number of years ago Elsie and Karin purchased some acreage on which to keep their horses, which they rode on weekends. Karin now accepts a job overseas and they decide to sell the land.

295. They put the land on the market with little success. The local real estate agent then advises that it would be easier to sell the land if it was subdivided into smaller lots. They arrange for a development application to be lodged with the local council and obtain approval to subdivide the land into nine lots. Elsie and Karin arrange for the land to be surveyed. The land has a road running along its boundary and has some existing services such as electricity. Only minimal activity is required to subdivide the land.

296. Elsie and Karin are not entitled to an ABN. The sale is not considered to be an enterprise and is the mere realisation of a capital asset.

We do not consider that your subdivision and sale of the resulting lots in your case will be an enterprise because:

• you purchased the land to use as a private investment asset and you have held it as a private investment asset

• you did not have an intention to sell the land when you bought it

• you did not buy additional land to amalgamate with the original block of land

• you will subdivide the land into just six lots

• you will not erect buildings on the land

• your development of the land will be limited to what council requires to secure the subdivision

• you hired a consultant to facilitate the subdivision application to council; you will have no personal involvement in the works to be undertaken to prepare the lots for sale and you hired a real estate agency to oversee the marketing and sale of the allotments, and

• you will not have a business organisation.

Your sale of the (number) vacant lots and the lot with the house on it is the mere realisation of a private investment asset.

Therefore, your sale of these lots will not be supplies made in the course or furtherance of an enterprise that you carry on. Hence, the requirement of paragraph 9-5(b) of the GST Act is not met. Therefore, as not all of the requirements of section 9-5 of the GST Act are met, GST will not be payable on your sale of the vacant lots and the lot with the house on it.

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