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Edited version of your written advice

Authorisation Number: 1051425513258

Date of advice: 5 September 2018

Ruling

Subject: GST and Subdivision

Question

Will the sale of the subdivided blocks allocated in Australia be a taxable supply pursuant to section 9-5 of A New Tax System (Goods and Services Tax) Act 1999?

Answer

No

Relevant facts and circumstances

You, purchased your family residence in YYYY. The property consisted of a main residence and undeveloped land totalling approximately X square metres. You have only ever used it for private purposes as your principle place of residence.

You are advanced in years and have significant health issues.

You knew a developer and due to your health issues you decided you needed to downsize your block and felt comfortable with asking him to do the development for you. You have never been involved in any property development yourselves or through any other related entity.

You began the project in MMYYYY and entered into a contract with the property developer to subdivide your property into X lots and sell off all except one of those lots. Each of those new lots would be around X square metres each and would be sold as residential land. Subdivision approval has been provided by the local council.

Your principle place of residence was located on the remaining block.

You have funded the development by borrowing against your property.

You registered for GST initially because you thought the subdivision activity was an enterprise and you claimed GST credits on construction costs.

You supplied a copy of the development contract with your application.

You have remained residing in your house during the development and will continue to reside in the residence following the development.

Sales of the lots are expected in the next 6 to 12 months.

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 25-50

Reasons for decision

Section 9-5 provides that you make a taxable supply if:

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Any supplies of the subdivided lots made under the arrangement as outlined in the facts and circumstances will not be GST-free or input taxed. In addition the supplies are connected with Australia and consideration will be paid for the subdivided lots. Therefore we will need to determine:

Enterprise

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 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.

Paragraph 94 of 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.

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 provides guidance on what activities will amount to an enterprise.

Paragraph 234 of MT 2006/1 distinguishes between activities done in the form of a ‘business’ and those done in the form of ‘an adventure or concern in the nature of trade’. In particular:

We do not consider your activities are in the form of a business and will consider whether they are done in the form of an adventure or concern in the nature of trade.

Paragraphs 178, 252 and 265 of MT 2006/1 set out a number of factors that can be looked at to determine whether a particular set of activities amounts to an enterprise.

We have reviewed your circumstances and have taken into consideration the following factors:

After considering all the facts and circumstances we consider that your activities amount to a ‘mere realisation’ of a capital asset, and do not constitute the carrying on of an enterprise.

Your circumstances display characteristics similar to example 33 contained in MT 2006/1.

As we consider your venture is not an enterprise, the supply of vacant lots will not be taxable supplies as you do not meet the criteria for 9-5. You are not entitled to an Australian Business Number (ABN) nor can you be registered for GST in relation to this activity.

Additional information

As per section 25-50 you are required to cancel your GST registration backdated to the start of its registration and you are not entitled to claim GST credits and will be required to refund them.

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