Edited version of private advice

Authorisation Number: 1051525732140

Date of advice: 04 June 2019

Ruling

Subject: Goods and services tax and property

Question

Will your supply of specified number vacant blocks of land from the property subdivision at specified address be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

This ruling applies for the following periods: 1 July 20XX to 30 June 20XX

The scheme commences on: 1 July 20XX

Relevant facts and circumstances

You (specified name) are not registered for the goods and services tax (GST) individually nor as a partnership. Specified name is married to specified name.

You purchased a house located at specified address (the property) which settled on specified date. At the time of acquiring the property the intention was to rent the property long term. The property has been rented from the date of acquisition until specified date, when the tenants were evicted due to non-payment of rent and left the property in a poor state.

The lease income producing property was jointly acquired by you under a single contract. The property is held by you as joint tenants. You funded the acquisition of the income producing property out of joint borrowings or funds. The joint activities of the co-owners were carried out for your mutual benefit. A property manager was appointed to act on your behalf. The rental from the property was paid into your joint bank account. The expenses relating to the income producing property were paid from your joint bank account. You jointly paid all liabilities in relation to the income producing property.

Your property manager advised that unless substantial repairs were made, it was unlikely you would be able to secure new tenants. You did not want to own a property with ongoing repairs. So you decided to obtain advice about the best way to dispose of the asset without being involved in the process. You engaged a property surveyor to provide advice and quote on the subdivision of the land on a specified date.

The surveyor provided quotes and recommended contractors for the following:

1) Demolition of the existing dwelling

2) Installation and connection of power, water and sewerage to each of the specified

number proposed blocks of land; and

3) Application and approval for subdivision.

You carried out steps 1 and 2 above.

You also installed a compliant boundary fence.

No houses have been built on the land. You did not have a business plan. However you believed that the subdivision and sale of specified number vacant blocks would achieve a higher sale price. You intend to submit an application to Landgate for separate titles.

Specified names are in their specified age. You are subdividing the property merely to unlock the potential capital gain. The sale of the individual blocks was intended to help fund your retirement.

We note the following in respect to the sub-division:

-               additional land was not acquired as part of the transaction;

-               the land was never brought to account as a business asset;

-               monies were not borrowed to undertake the subdivision;

-               the level of development undertaken was the minimum to obtain

council approval for the subdivision;

-               the subdivision only occurred in order to avoid incurring substantial repair

costs as opposed to a strategy of generating profits from the sale of property;

and

-               the land was not bought with the intention of resale at a profit.

You own your principal place of residence.

You own specified number other rental properties. They are residential premises and held long term to derive rental income.

You do not have any other real estate transactions apart from what is mentioned in the facts above.

You do not carry on any other enterprises.

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 paragraph 9-5(b)

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

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

Reasons for decision

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

§ All terms marked by an *asterisk are defined terms in the GST Act.

Tax law partnership

We firstly need to determine the relevant entity that will make the supply of the

specified number vacant blocks of land.

Goods and Services Tax Ruling GSTR 2004/6 Goods and services tax: tax law partnerships and co-owners of property (GSTR 2004/6) deals with whether tax law partnerships exist. Paragraphs 81 to 84 of GSTR 2004/6 state:

Tax law partnerships involving family members

81. The acquisition of property for income producing purposes by family members is ordinarily made by them under an arrangement or agreement. The acquisition is often made by them as joint tenants out of joint funds or borrowings, and under a single contract. The property is usually acquired for the mutual benefit of all the family members, including any children.

82. The appointment of an agent or manager to manage the leasing of the property is a joint decision of all members, or by one member acting on behalf of and with the express or implied authority of the other members. Frequently, the person managing the property is a family member. Rental income is deposited into a joint bank account. Outgoings in relation to the property are also paid out of the same account.

83. A case where these features were present is McDonald. In that case, a husband and wife entered into an agreement to invest in income producing properties; they borrowed funds to finance the purchase, the properties were purchased as joint tenants, and the income was paid into a joint bank account from which outgoings were also paid.

84. In our view, the weight of factors present in these types of cases means that the leasing enterprise is carried on by a tax law partnership.

Your facts are similar to the above example. Accordingly you are a tax law partnership.

Taxable supply

Section 9-5 provides that:

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.

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

For your supply to be taxable it must satisfy all the requirements of section 9-5. You will not make a taxable supply if you fail to meet one of the requirements of section 9-5.

We will consider whether the supply of the specified number vacant blocks will be made in the course or furtherance of an enterprise that you carry on.

Leasing enterprise

Leasing meets the definition of enterprise under section 9-20.

Section 195-1 provides that 'carrying on' an enterprise includes doing anything in the course of the commencement or termination of the enterprise. It follows that, you carried on a leasing enterprise until the house located at specified address was demolished.

Property development enterprise

We now consider whether the subdivision and sale of specified number vacant blocks of land constitute a property subdivision enterprise.

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) deals with, among other things, whether an enterprise exists.

Paragraph 186 of MT 2006/1 states that:

There are a range of activities that are of such a small scale that they do not amount to an enterprise. As explained in paragraph 180 of this Ruling, where activities are conducted on a small scale other indicators become more important in deciding whether they amount to an enterprise. While it is always a question of fact and degree in each particular case, it would be difficult to conclude that activities are an enterprise where they are of a very small size and scale, are carried on in an ad hoc manner, and there is little repetition or regularity.

Your property subdivision activities are of a small scale. Your activities are carried out in an ad hoc manner. There is little repetition or regularity.

In addition, you held the property in order to derive lease income from letting the property to various parties. You did not acquire the property with the intention of deriving income from the disposal of the property. The land is therefore a capital asset.

It follows that, your property subdivision activities do not amount to an enterprise.

You fail to meet paragraph 9-5(b) because your supply will not be made in the course or furtherance of an enterprise that you carry on. Accordingly, your supply of any of the specified number vacant blocks of land will not be a taxable supply for the purposes of section 9-5.

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