Edited version of your written advice

Authorisation Number: 1013046999194

Date of advice: 6 July 2016

Ruling

Subject: GST and subdivision and sale of land

Question 1

Are you required to be registered for goods and services tax (GST) in respect of the subdivision and subsequent sale of land surrounding your family home?

Answer

No.

Relevant facts and circumstances

You are not registered for GST.

You jointly own the property.

You purchased the land and constructed your residence on this land

You have held the property as your principal place of residence since the construction of your house.

You are of a mature age and want to continue residing in your community. To reduce the maintenance requirements of the property, you are now considering subdividing the property for the purpose of selling the subdivided lots and keeping the subdivided lot on which the house is located.

You have applied to your local council to subdivide the land.

You intend to subdivide the property into a specified number of lots.

You intend to sell these subdivided lots.

You will continue to live in your residence located on the remaining land.

The subdivided land will not be developed beyond the minimum requirements of the council.

You will not be erecting any buildings or fences on the subdivided land.

You have not undertaken any other subdivision activities in the past and have no intention to undertake any other similar activities in the future.

You will use your own savings and borrowings to finance the subdivision. You intend to repay the borrowings following the sale of the first few subdivide lots.

It is expected that you will engage the services of surveyors, town planners and civil engineers to lodge the subdivision permit and to appoint and supervise the contractors for the operational works.

The sub-division will not be run through a business, there will be no letterheads, no manager will be appointed and all sales will be through a real estate agent's office.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 23-5

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-20(1)

Reasons for decision

Under section 23-5 of the GST Act, you are required to be registered for GST if:

• you are carrying on an enterprise; and

• your GST turnover meets the registration turnover threshold.

Subsection 9-20(1) of the GST Act defines what constitutes an enterprise. This definition includes an activity or series of activities done in the form of an adventure or concern in the nature of trade.

Miscellaneous Taxation Ruling MT 2006/1 (MT 2006/1) provides the Commissioner's view on the meaning of an entity carrying on an enterprise.

The question of whether an entity is carrying on an enterprise often arises where there are 'one offs' or isolated real property transactions.

Paragraphs 262 to 269 of MT 2006/1 provide guidance in determining whether activities are of a revenue nature and 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.

Specifically paragraph 265 lists a number of factors which can be used to determine whether activities in relation to a sale of property are done under a profit-making undertaking or scheme. 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 will now be addressed individually:

• There is a change of purpose for which the land is held

You purchased the land and constructed a residence.

You wish to continue living in your local community but wish to reduce your maintenance requirements.

You intend to subdivide part of the land and intend to sell these subdivided lots. You will continue to live in your residence located on the remaining land. As such there is a change in purpose for which the land is held.

• Additional land is acquired to be added to the original parcel of land

You have not acquired additional land to be added to the original parcel of land.

• The parcel of land is brought into account as a business asset

The property was used as your principal place of residence and therefore it has been a private asset.

• There is a coherent plan for the subdivision of the land

You have applied to your local council to subdivide the land. You will engage surveyors, town planners and civil engineers to undertake the subdivision activities and a real estate agent to carry out marketing and sales. As such these activities are planned and organised.

• There is a business organisation - for example a manager, office and letterhead

You do not have a business organisation in relation to these activities. For example there is no manager, sales office or office letterhead.

• Borrowed funds financed the acquisition or subdivision

You will use your own savings and borrowings to finance the subdivision. You intend to repay the borrowings following the sale of the subdivided land.

• Interest on money borrowed to defray subdivisional costs was claimed as a business expense

Although the subdivision will be financed with borrowings in your own name, you will not be running the subdivision through a business.

• There is a level of development of the land beyond that necessary to secure council approval for the subdivision

There will be no development of the land beyond that necessary to secure council approval for the subdivision.

• Buildings have been erected on the land.

There are no buildings erected on the subdivided land and you do not intend to build any.

As discussed above, to determine 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. 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 weighing up all of the factors in your case, it is our view that the activities of subdivision and subsequent sale of land will be a mere realisation of a capital asset.

It follows that development and the subsequent sale of this land does not constitute an enterprise for the purposes of subsection 9-20(1) of the GST Act.

As your land development activities do not satisfy the first requirement of section 23-5 of the GST Act, you are not required to be registered for GST in respect of the subdivision and sale of the land surrounding your family home.

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