Edited version of your written advice

Authorisation Number: 1012776016189

Ruling

Subject: GST and property subdivisions

Question 1

Will your sale of the property be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No. Your sale of the Property will not be a taxable supply as it is not made in the course of any enterprise. Therefore, no GST will be payable on sale.

Question 2

Will your sale of the Property be an input taxed supply of residential premises under section 40-65 of the GST Act?

Answer

The house, located on the Property and the land surrounding it, to the extent that it is enjoyed in conjunction with the house will be an input taxed supply of residential premises. The balance of the Property will be neither an input taxed or taxable supply.

Relevant facts and circumstances

You, entity A and entity B inherited a property located in Australia (the Property) from a relative (Entity C). You are not registered for GST individually nor have you been registered for GST in the past. You have not carried on a business of buying and selling land or the development of land in the past either together or separately. You have held the property since you inherited it on ddmmyyyy as tenants in common.

The Property is X hectares in size and contains a residential dwelling surrounded by a fence and a shed which has not been used for XX years. The balance of the land was used as a market garden until the mid YYYY's when all business activity ceased on the property. The market garden initially covered approximately 80% of the property however it has not been used for this purpose for XX years. The house was occupied by Entity C solely as their residence until 201X when they moved into a hostel and it has been vacant since that time.

The residence is still sound however the property is generally overgrown and not used for any purpose at all. The shed is dilapidated and has not been used for XX years. You have not undertaken any work on the property to prepare it for sale.

The property was zoned non-urban rural land until 200X when the Department of Planning and Environment (Planning) rezoned the land. Currently X% is zoned R2 Low Density and XX% is zoned SP 2 Infrastructure. The purpose of the rezoning was that a government department could acquire the property. However the department no longer requires the land and Planning has recommended the area of land around and including the property be all zoned R2 Low Density.

You have entered into a contract of sale of the property and the sale is expected to take place on or before ddmmyyyy.

You will not be undertaking any subdivision activity and will be selling the property in an as is condition. It is expected that the developer will subdivide and develop the property.

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 Section 40-65

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decision

In this reasoning, please note:

• All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless otherwise specified.

Question 1

Goods and services tax (GST) is payable on taxable supplies. Section 9-5 provides that you make a taxable supply if:

(a) you make a supply for consideration

(b) the supply is made in the course or furtherance of an enterprise that you carry on

(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.

You will be supplying a freehold interest in land for consideration. The supply will be connected with Australia however you are not registered for GST. In your circumstances, there is no provision in the GST Act whereby any portion of the property supplied would be GST-free.

Therefore where the supply of the property is made in the course or furtherance of an enterprise that you carry on and you are required to be registered for GST, the supply of that portion of the property will be taxable supply except to the extent that it is input taxed.

The primary issue to be resolved is whether the supply of the property is made in the course or furtherance of an enterprise you carry on, satisfying 9-5(b).

Enterprise

Subsection 9-20(1) provides, amongst other things, that an enterprise is an activity, or series of activities, done:

• in the form of a business, or

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

Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) considers the meaning of carrying on an enterprise.

Paragraph 177 to 179 of MT 2006/1 discuss the main indicators of carrying on an business, and state:

Indicators of a business

177. To determine whether an activity, or series of activities, amounts to a business, the activity needs to be considered against the indicators of a business established by case law.

178. TR 97/11 discusses the main indicators of carrying on a business. Based on that discussion some indicators are:

• a significant commercial activity;

• a purpose and intention of the taxpayer to engage in commercial activity;

• an intention to make a profit from the activity;

• the activity is or will be profitable;

• the recurrent or regular nature of the activity;

• the activity is carried on in a similar manner to that of other businesses in the same or similar trade;

• activity is systematic, organised and carried on in a businesslike manner and records are kept;

• the activities are of a reasonable size and scale;

• a business plan exists;

• commercial sales of product; and

• the entity has relevant knowledge or skill.

179. There is no single test to determine whether a business is being carried on. Paragraph 12 of TR 97/11 states that 'whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing all the relevant indicators'. TR 97/11 can be referred to for a fuller discussion on whether a particular activity constitutes the carrying on of a business....

In your case, these indicators are not present as the land has not been used for any enterprise since the mid YYYY's and you have not undertaken any activities on the land since you inherited it.

We have taken into account the above factors, and consider that the sale of the Property including the sale of the portion that relates to the residence does not amount to an enterprise in the form of a business or in the form of an adventure or concern in the nature of trade.

Therefore, you do not satisfy paragraph 9-5(b), as you are not carrying on an enterprise.

In addition we note that section 23-5 requires an entity to be registered for GST where it is carrying on an enterprise and its GST turnover meets the registration turnover threshold. In your case you are not carrying on an enterprise and therefore are not required to be registered for GST.

Conclusion

As your activities of selling the property do not amount to an enterprise, and you are not required to be registered for GST, you will not be making a taxable supply when you sell the property.

Question 2

Under subsection 40-65(1), a sale of real property is input taxed to the extent that the property is residential premises to be used predominantly for residential accommodation and is not commercial residential premises or new residential premises. In your case the premises are not new residential premises or commercial residential premises.

The term 'residential premises', as defined in section 195-1, refers to land or a building that is occupied as a residence or for residential accommodation or is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation (regardless of the term of the occupation or intended occupation).

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises, provides guidance on what is considered to be residential premises to be used predominantly for residential accommodation for the purposes of subsection 40-65(1).

Paragraph 46 of GSTR 2012/5 provides that:

There is no specific restriction, in the definition of residential premises, on the area of land that can be included with a building. The extent to which land forms part of residential premises to be used predominantly for residential accommodation is a question of fact and degree in each case. A relevant factor in determining this is the extent to which the physical characteristics of the land and building as a whole indicate that the land is to be enjoyed in conjunction with the residential building. The use of the land is not a determining factor in deciding if the land forms part of the residential premises.

In your case, the house and the portion of the property that can be enjoyed in conjunction with the house will also form part of the residential premises and be input taxed. The balance of the land when supplied will not be input taxed nor will it be a taxable supply for the reasons set out in question one.

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