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Edited version of your written advice
Authorisation Number: 1051281345934
Date of advice: 10 October 2017
Ruling
Subject: Sale of subdivided Lot
Question 1
Is the sale of the subdivided lot subject to GST?
Answer
No.
Relevant facts and circumstances
● You purchased a property with two subdivided lots on the title with a house straddling both blocks.
● You purchased the property with the intention to renovate the house and use the house as your principal residence.
● You financed the purchase of the property via a mortgage.
● You subsequently changed your mind about renovating the house. You decided to sell one of the lots to finance the construction of your new home on the remaining block.
● You demolished the house and sold one of the subdivided lots.
● You have no experience in property development and have not bought and sold properties as an enterprise.
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
Reasons for decision
All legislative references are to A New Tax System (Goods and Services Tax) Act 1999.
GST is payable on any taxable supplies that you make. Section 9-5 provides 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 the indirect tax zone; 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.
The sale of the subdivided lot is not a taxable supply because it is not sold in the course or furtherance of an enterprise that you carry on.
Section 9-20 provides that the term ‘enterprise’ includes, among other things, an activity or series of activities done in the form of a business or done in the form of an adventure or concern in the nature of trade. The phrase ‘carry on’ in the context of an enterprise includes doing anything in the course of the commencement or termination of the enterprise.
Miscellaneous Taxation Ruling MT 2006/1 provides our view on the meaning of 'enterprise' for the purposes of entitlement to an Australian Business Number (ABN). The ruling can be relied on for GST purposes as the definition of enterprise is the same for the purposes of GST and ABN.
Paragraph 178 of the ruling lists the indicators of a business and they include the activity is a significant commercial activity and that it is recurrent or of a regular nature.
Paragraph 234 of the ruling provides that the phrase “an adventure or concern in the nature of trade” includes an isolated or one-off transaction that does not amount to a business, but which has the characteristics of a business deal.
Paragraph 262-263 states that the question of whether an entity is carrying on an enterprise often arises where there are ‘one-offs’ or isolated real property transactions. The issue to be decided is whether the activities being conducted are of an adventure or concern in the nature of trade (profit making undertaking or scheme) as opposed to the mere realisation of a capital asset.
Paragraph 265 lists the factors that indicate a “business” or an adventure or concern in the nature of trade being carried on for isolated property transactions. 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 at paragraph 265, 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 your case, you had purchased the property with the intention of renovating the house to live in. You subsequently changed your mind and decided to demolish the house and sell one of the already subdivided lots to fund the building of your new home on the other. You have not previously been involved with property development nor buying and selling of property as an enterprise. The sale of the subdivided lot is a “once-off” event, and does not have a recurrent or regular nature or have a sufficiently commercial flavour to be a “business” or “an adventure or concern in the nature of trade”. The activities involving the sale of the subdivided lot do not constitute ‘carrying on an enterprise’ and therefore its sale is not subject to GST.
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