Edited version of private advice

Authorisation Number: 1051757489263

Date of advice: 22 September 2020

Ruling

Subject: GST and land subdivision

Question 1

Are you considered to be carrying on an enterprise in relation to the subdivision?

Answer

No. You are not considered to be carrying on an enterprise in relation to the subdivision.

Question 2

Do you need to register for GST?

Answer

No. You do not need to register for GST.

Question 3

Will you need to pay GST on the sale price?

Answer

No. You will not need to pay GST on the sale price.

Question 4

If it is considered to be an enterprise and GST is payable how do you account for the purchase; do you use the original purchase cost for the purposes of the business, or do you use market value at the time of subdivision or before subdivision?

Answer

As you are not considered to be carrying on an enterprise question 4 is not applicable.

Question 5

Can you use the margin scheme and claim input tax credits on the property purchase?

Answer

For the margin scheme to be available to an entity the supply being made must be a taxable supply. According to the facts provided you are not carrying on an enterprise and you are not registered nor are you required to be registered for GST. Therefore, your supply of the vacant lots will not be taxable. Consequently, the margin scheme cannot be applied to the supply of the vacant land.

Relevant facts and circumstances

You purchased a property as your main residence several years ago.

You moved in straight away in the property and lived there for numerous years.

During this time there were no major changes to the property just some painting, new curtains, new air conditioner.

You then decided you wanted to sell and move to a different location.

You contracted the assistance of a Land Division Development Consulting firm which obtained council approval to subdivide the property on your behalf.

Due to the position of the house it will have to be demolished, which the Land Division Development Consulting firm is assisting you to organise soon.

You will then sell the property as 2 equal size vacant blocks of residential land.

You have not been involved in any property development in the past.

You have not sought any finance to undertake the above and have merely used your savings to do so.

The scale of the activity is not substantial. This is a mere subdivision that required only minimal council requirements/applications for approval.

You are not registered for GST.

You have no intention of undertaking similar subdivision in the future.

The two plots will be sold as vacant lots.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) sections 9-5; 9-20; 23-5 & 75-5

Reasons for decision

Section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) defines enterprise to include:

an activity, or a series of activities, done:

(a) in the form of a business; or

(b) in the form of an adventure or concern in the nature of trade.

The following paragraphs have been extracted from 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 indicators of carrying on a business.

Isolated transactions and sales of real property

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

263. The issue to be decided is whether the activities are an enterprise in that they are of a revenue nature as they are 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. (In an income tax context a number of public rulings have issued outlining relevant factors and principles from judicial decisions. See, for example, TR 92/3, TD 92/124, TD 92/125, TD 92/126, TD 92/127 and TD 92/128.)

264. The cases of Statham & Anor v. Federal Commissioner of Taxation 105 ( Statham ) and Casimaty v. FC of T 106 ( Casimaty ) provide some guidance on when activities to subdivide land amount to a business or a profit-making undertaking or scheme. In these cases, farm land was subdivided and sold. Minimal development work was undertaken to meet council requirements and to improve the presentation of certain allotments. On the particular facts of these cases the courts held that the sales were a mere realisation of a capital asset.

Paragraph 178 to 179 of Miscellaneous MT 2006/1 provides indicators of carrying on a business.

Based on the facts provided and applying the above, you are not carrying on an enterprise.

2. Section 23-5 of the GST Act provides that you are required to be registered for GST 'if:

(a) you are carrying on an enterprise; and

(b) your GST turnover meets the registration turnover threshold'.

As you are not carrying on an enterprise in regard to the subdivision of land, you are not required to be registered for GST and consequently not required to charge GST.

The sale of the subdivided lots are considered to be a mere realisation of your capital asset.

An entity is required to pay GST on any taxable supply that it makes.

An entity makes a taxable supply under section 9-5 of the GST Act if it makes the supply for consideration, in the course or furtherance of an enterprise it carries on, the supply is connected with the indirect tax zone (Australia) and the entity is registered or required to be registered for GST.

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

All the elements under section 9-5 of the GST Act have to be satisfied for a supply to be taxable.

In this case you are not considered to be carrying on an enterprise. Therefore, the supply of the subdivided land is not taxable, and you do not need to pay GST on the supply.

As you are not considered to be carrying on an enterprise question 4 is not applicable.

Section 75-5 of the GST Act provides that the margin scheme applies in working out the amount of GST on a taxable supply of real property an entity makes. As the supply of the subdivided land will not be taxable the margin scheme is not available to you.

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