Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1012984672524

Date of advice :6 April 2016

Ruling

Subject: GST and the subdivision of land

Question 1

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

Answer

Yes.

Question 2

Will your supply of a call option or extensions of a call option over the Land to the Developer be a taxable supply under section 9-5 of the GST Act?

Answer

Yes.

Question 3

Will your supply of the Land to the Special Purpose Vehicle be a taxable supply under section 9-5 of the GST Act?

Answer

Yes.

Relevant facts and circumstances

You are registered for GST and carry on a farming enterprise.

Your total land holdings are approximately X hectares located in Australia. In addition you lease around X hectares of farm land.

Approximately X% of your total land holding known as the 'farm' was originally acquired on or around 19XX and transferred to you soon after your incorporation in 19XX.

The land described as Property A, Property B and Property C were acquired around X years, X years and X years ago respectively. Property A and Property B each represent around X% of your holding by area whilst the Property C land is around X hectares in size.

All of your land is adjoining and apart from around X hectares, which is leased to another Entity for other purposes, all of the land is used in the conduct of a primary production business of sheep and cattle farming.

For the purposes of this ruling any reference to 'the Land' is a reference to subdivided titles, comprised in portions of former Certificates of various titles (the Land).

The Land is part of the 'farm' to the west of a specified road. The total area of the Land is around X hectares, around X% of your total land holding.

The entirety of your landholdings (excluding around X hectares leased to another entity), have only ever been used for primary production activities.

In the last few years several developers have made unsolicited offers to you to acquire the Land.

You have never initiated contact with developers.

In 20XX, A Developer contacted you with a development proposal for the Land. You have had sporadic discussions and negotiations with the Developer which formalised in late 20XX and on 10 DDMMYYYY you executed the Agreement with the Developer. You have provided a copy of the Agreement.

The main features of the proposed sale of the Land by you to the Developer, as contemplated by the Agreement, are summarised as follows:

An Option Agreement will be entered where by you grant the Developer a call option to acquire the Land.

You have never carried on a business of buying or selling land or developing property.

The supply of land to the special purpose vehicle will be at market value.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5.

Reasons for decision

In this reasoning, please note:

To be a taxable supply, a supply must meet all of the requirements of section 9-5 which states:

In your case, you will be making the following supplies:

We will consider each supply separately.

Residential stage

You carry on an enterprise of farming. The supply of a Residential Stage, a section of the Land in Australia will be for consideration and you are registered for GST. Further in your factual circumstances the supplies will not be input taxed or GST-free. Therefore, if the supplies are made in the course of an enterprise you carry on they will be taxable supplies pursuant to section 9-5.

ATO Interpretative Decision ATO ID 2003/701 Goods and Services Tax GST and sale of an asset that was purchased for, but not used in, an entity's business (ATO ID 2003/701) states the phrase, 'in the course or furtherance of' is not defined in the GST Act. Accordingly, it is appropriate to examine the ordinary meaning of those words.

The Australian Concise Oxford Dictionary (1997) defines the phrase 'in the course of' as 'during'. The word 'furtherance' is defined to mean 'furthering or being furthered; the advancement of a scheme etc'.

The Explanatory Memorandum relating to the A New Tax System (Goods and Services Tax) Bill 1998 confirms this ordinary meaning at paragraph 3.10 which states:

You have used the Land (with other farm land) for your farming enterprise.

You are subdividing and selling the Land, and as explained in ATO ID 2003/701, the sale is connected with your enterprise. The sale of the Land is made in the course or furtherance of your enterprise.

The supply of the Land to the Developer will be a taxable supply pursuant to section 9-5.

Call option

A 'supply' is defined in subsection 9-10 to include a creation, grant, transfer, assignment or surrender of any right.

You are making a supply of a right in Australia, a call option (or an extension of a call option) over a section of the Land for the Option Fee in the course of your farming enterprise and you are registered for GST.

ATO Interpretative Decision ATO ID 2005/182 Goods and Services Tax GST and supply of a call option over commercial property states that an entity is making a taxable supply under section 9-5 when it grants a call option that entitles the grantee to purchase real property, the supply of which is a taxable supply.

The supply of the call option (or an extension of a call option) is a supply of a right to receive a supply of land which would be a taxable supply under section 9-5 (as discussed above).

Therefore, your supply of the call option (or an extension of a call option) will be taxable.

Land

You are making a supply of Land in Australia for market value in the course of your farming enterprise and you are registered for GST. Therefore, you satisfy paragraphs 9-5 (a), (b), (c) and (d). The supply will not be input taxed or GST-free.

The supply of the Land will be a taxable supply under section 9-5.


Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).