Edited version of private advice

Authorisation Number: 1051822653268

Date of advice: 31 March 2021

Ruling

Subject: GST and income tax consequences in relation to the sale of subdivided property

Question 1

Are you liable for GST pursuant to section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you sell subdivided lots located at a specified location?

Answer

No.

Based on the information provided, your activities of subdividing land and selling the vacant subdivided lots are not done in the course or furtherance of an enterprise. You are not required to register for GST.

As such, the sales of the vacant lots do not meet the definition of a 'taxable supply'. It follows that you do not satisfy section 9-40 and are not liable for GST on the sale.

Question 2

Will any of the proceeds from the sale of the subdivided lots of land be treated as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Based on the information provided, the proceeds from the sale of the subdivided lots will not be ordinary income and not assessable under section 6-5 of the ITAA 1997as either:

•         the carrying on of a business in accordance with the factors listed in Taxation Ruling TR 97/11; or

•         a profit-making or commercial transaction in accordance with Taxation Ruling TR 92/3.

Therefore, any proceeds received on the disposal of the subdivided lots will represent a mere realisation of capital assets which will be assessed under the capital gains tax provisions contained in Parts 3-1 and 3-3 of the ITAA 1997.

This ruling applies for the following period:

1 July 20XX - 30 June 20XX

The scheme commences on:

1 October 20XX

Relevant facts and circumstances

You are not registered for GST.

You own property situated at a specified location (the Property).

The Property is approximately x acres and contains a residential dwelling.

You purchased the Property in yyyy with your spouse.

Your spouse passed away in yyyy. His ownership interest in the Property passed to you upon his death.

The Property has been used as your main residence since it was purchased.

The Property is zoned rural residential. There has been no change in the zoning since you acquired the Property.

Following the passing of your spouse, the Property has become increasingly more difficult to maintain and you have decided to subdivide the block and sell the subdivided lots.

You have never placed the Property, prior to subdivision, on the market for sale.

You took the preliminary steps of discussing the subdivision with a surveyor and made application to the relevant council (Council).

The Property will be subdivided into x lots.

You intend to retain the lot containing the existing residential dwelling and continue to use it as your main residence.

You intend to sell the remaining lots over the next few years.

You commenced the subdivision process in mm/yyyy and have incurred costs including:

•         Construction of two driveways, removal and disposal of trees, fence and shed;

•         Inspection of driveways;

•         Supply of electricity;

•         Supply of water to back lots;

•         Network connection and NBN;

•         Engineering services;

•         Engineering works;

•         Surveying services;

•         Installation of fire hydrant;

•         Sewerage services;

•         Slashing services.

The following expenses are still expected to be incurred:

•         Council fees;

•         Title fees;

•         Surveying services.

The total estimated cost to subdivide the Property is approximately $xxx,xxx.

The subdivision activities were funded from personal savings.

The market value of the Property prior to the subdivision activities (un-subdivided) was approximately $x.x million.

Each of the vacant lots are estimated to sell for $xxx,xxx each.

The subdivided lot containing the existing residential dwelling has an estimated sale price of $xxx,xxx to $xxx,xxx however you will retain this lot for use as your main residence.

You intend to market and sell the subdivided lots privately however you may engage a real estate agent.

The process of the subdivision has recently been completed however titles have not been issued by Council as yet.

You will be the registered owner of the subdivided lots until sold.

You have not previously engaged in activities of property development or land subdivision.

You do not intend to engage in similar activities in the future.

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 Paragraph 9-20(1)(a)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-20(1)(b)

A New Tax System (Goods and Services Tax) Act 1999 Section 9-40

A New Tax System (Goods and Services Tax) Act 1999 Section 23-5

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Part 3-1

Income Tax Assessment Act 1997 Part 3-3

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