Edited version of private advice

Authorisation Number: 1051777886746

Date of advice: 10 November 2020

Ruling

Subject: GST and property - subdivisions

Question

Will the sale of x, in its current or subdivided state, be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999?

Answer

No.

Relevant facts and circumstances

You are not registered for GST.

The late Mx xx was the registered proprietor of x (the Property).

The Property was acquired in approximately 19XX or 19XX.

The Property is approximately XX square metres and was initially zoned RU4 farm. There is an older 3 bedroom house on the Property. The house is built for residential accommodation with physical characteristics including bedroom(s), bathroom(s), toilet(s) and kitchen. The house provides basic living facilities and shelter. The house was on the Property when it was acquired by the late Mx xx. The house has not been substantially renovated.

The Property was not operated as a farm. It has been continuously utilised for residential purposes only.

The Property was occupied by the late Mx xx as a principal residence. It remained xx residence until about X years ago when he left for a nursing home.

The Property was then leased.

Mx xx passed away on XX/XX/XXXX

In XX, the Property was rezoned a mixture of:

•         R2 - low density residential; and

•         R3 - medium density residential; and

•         RE1 - public recreation.

The Property was listed for sale in XX/XXX.

On the XX/XX/XXXX you entered into a Deed of Put & Call Option to sell the Property. Under clause XX of the Deed the purchaser is authorised to act as your representative with respect to rights granted under that clause. The purchaser applied to the relevant authority to subdivide the Property into X lots. Approval has been given to subdivide the Property into X lots. The purchaser has not done anything else other than obtain the said approval.

The new lot sizes after the proposed subdivision are: XXXXXX

The house will be located on the proposed Lot X. All lots will be transferred to the purchaser if subdivision occurs before settlement.

The Property is still leased and will continue to be let until settlement. The Property is leased for less than $XXX a year.

The Purchaser wants to register the approved subdivision plan and obtain separate land title for the lots. This may occur before or after the sale of the Property is settled. No physical works has been or will be carried out on the Property until after settlement. Settlement is expected to take place in XX/XXXX.

If you subdivide the Property prior to sale settlement then the proposed lots will be leased for less than $75,000 a year.

You have not previously participated in development or subdivision activities.

You do not carry on any other enterprises.

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 188-10(1)

A New Tax System (Goods and Services Tax) Act 1999 section 188-25

Reasons for decision

In this ruling:

•         unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

•         all terms marked by an *asterisk are defined terms in the GST Act

•         all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on ato.gov.au

No subdivision prior to sale settlement

(i) House and curtilage

GST is payable on taxable supplies. Section 9-5 states:

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.

Subsection 40-65(1) states:

A sale of *real property is input taxed, but only to the extent that the property is *residential premises to be used predominantly for residential accommodation (regardless of the term of occupation).

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises provides the following commentary in relation to land included with a building:

Land supplied with a building

46. There is no specific restriction, in the definition of residential premises, on the area of land that can be included with a building. The extent to which land forms part of residential premises to be used predominantly for residential accommodation is a question of fact and degree in each case. A relevant factor in determining this is the extent to which the physical characteristics of the land and building as a whole indicate that the land is to be enjoyed in conjunction with the residential building. The use of the land is not a determining factor in deciding if the land forms part of the residential premises.

The existing residence meets the definition of residential premises. The portion of the land that can be enjoyed in conjunction with the house will also form part of the residential premises. This can include associated car ports, footpaths and gardens immediately surrounding the house. The supply of the house and curtilage will be input taxed under subsection 40-65(1).

So the house and curtilage will not be a taxable supply.

(ii) Vacant land (ie the rest of the land other than the house and curtilage)

According to section 40-65, a sale of real property is input taxed, but only to the extent that the property is residential premises. However, vacant land is not residential premises. Vacant land cannot be input taxed under subsection 40-65(1). Vacant land is not input taxed under other provisions of the GST Act.

In addition, vacant land is not GST-free under the GST Act.

We now consider whether the sale of vacant land satisfies paragraphs 9-5(a), (b), (c) and (d). In your case, the sale of the vacant land will be for consideration. The supply is made in the course or furtherance of a leasing enterprise that you carry on. The sale of the vacant land will be connected with the indirect tax zone as it is located in Australia. Hence, the requirements in paragraphs 9-5(a), (b) and (c) will be satisfied.

It remains to be determined whether you are required to be registered for GST (paragraph 9-5(d)).

Requirement to be registered

Section 23-5 provides that you are required to be registered for GST if:

•         you are carrying on an enterprise, and

•         your GST turnover meets the GST registration turnover threshold, which is currently $75,000 for entities other than non-profit entities.

You have been using the vacant land to carry on a leasing enterprise.

However, if your GST turnover does not meet the GST registration turnover threshold then you are not required to be registered. This being the case, you will not satisfy section 23-5.

Next, we will consider whether your GST turnover meets the GST registration turnover threshold.

GST registration turnover threshold

Subsection 188-10(1) provides that you have a GST turnover that meets the registration turnover threshold if:

•         your current GST turnover is at or above the registration turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the registration turnover threshold, or

•         your projected GST turnover is at or above the registration turnover threshold.

The registration turnover threshold applicable to you is $75,000.

It is necessary to determine whether your projected GST turnover meets the threshold. You are required to be registered for GST if your projected GST turnover is at or above $75,000.

Your projected GST turnover is the sum of the values of all supplies made in a particular month plus the next 11 months.

Supplies that are disregarded when working out your projected GST turnover include:

•         supplies that are input taxed

•         supplies that are not for consideration (and are not taxable supplies under section 72-5 of the GST Act)

•         supplies that are not made in connection with an enterprise that you carry on

•         supplies that are not connected with Australia.

Your lease of the residential premises (ie house and curtilage) is input taxed. Such supplies are disregarded when working out your projected GST turnover.

Your lease of vacant land will contribute towards your projected GST turnover. However, your projected GST turnover is below $75,000.

Section 188-25 provides that when calculating your projected GST turnover, you do not include any supplies made, or likely to be made by you:

•         by way of transfer of ownership of a capital asset, or

•         solely as a consequence of ceasing an enterprise or substantially and permanently reducing the size or scale of your enterprise.

Capital asset

The meaning of 'capital asset' is discussed in paragraphs 31 to 36 of Goods and Services Tax Ruling GSTR 2001/7 Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover (GSTR 2001/7).

The GST Act does not define the term "capital asset". However, GSTR 2001/7 explains that generally, the term capital assets refers to those assets that make up the profit yielding subject of an enterprise. They are often referred to as structural assets. They may be described as the business entity, structure or organisation set up or established for the earning of profits.

Capital assets are to be distinguished from revenue assets. A revenue asset is an asset whose realisation is inherent in, or incidental to, the carrying on of a business. If the means by which you derive income is through the disposal of an asset, the asset will be of a revenue nature rather than a capital asset even if such a disposal is an occasional or one-off transaction. Therefore, the character of an asset must be determined at the time of expected supply.

You hold the vacant land as trustee of the deceased estate. You did not acquire the vacant land in order to derive income from their disposal. The late Mx xx purchased the Property in the 19XX's and utilised the Property only as his residence. The vacant land is therefore a capital asset. It follows then, that the disposal of the vacant land is excluded from the calculation of your projected GST turnover.

You do not carry on any other enterprises. Your projected GST turnover is below $75,000. Your GST turnover does not meet the $75,000 GST registration turnover threshold. Therefore, you are not required to be registered under section 23-5.

It follows that, you do not satisfy paragraph 9-5(d). Accordingly, your supply of the vacant land will not be a taxable supply.

Subdivision prior to sale settlement

(i) Lot X (with house)

The supply of Lot X will be input taxed under subsection 40-65(1). It is a supply of residential premises to be used predominantly for residential accommodation.

Therefore, the supply of Lot 1 will not be a taxable supply.

(ii) Other lots

As above, we need to determine whether you are required to be registered for GST (paragraph 9-5(d)).

Your lease of Lot X is input taxed. Such supplies are disregarded when working out your projected GST turnover.

Your lease of the other lots will contribute towards your projected GST turnover. However, your projected GST turnover is below $75,000.

Your disposal of the other lots will be excluded from the calculation of your projected GST turnover. The reason is similar to that described above in respect to the sale of vacant land (ie the rest of the land other than the house and curtilage).

You do not carry on any other enterprises. Your projected GST turnover is below $75,000. Your GST turnover does not meet the $75,000 GST registration turnover threshold. Therefore, you are not required to be registered under section 23-5.

It follows that, you do not satisfy paragraph 9-5(d). Accordingly, your supply of the other lots will not be taxable supplies.

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