Edited version of private advice

Authorisation Number: 1051831701793

Date of advice: 27 April 2021

Ruling

Subject: GST and sale of subdivided land

Question

Are the proposed sales of 4 subdivided blocks taxable supplies under section 9-5 of the A new Tax System (goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the proposed sale of the 4 subdivided blocks will not be taxable supplies under section 9-5 of the GST Act.

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 are the owners of the property situated at XXXX (the property).

You purchased the property in 19XX as your principal place of residence. The property comprises XX acres and has never been used by you to produce income. You have never held the property as a business asset. You have not previously undertaken any improvements on the land.

You are registered for GST. You registered for GST because you own a commercial property, a shop and are in receipt of rent from the shop.

You are now in the process of subdividing part of the property into 4 residential lots (4 subdivided blocks). You have decided to subdivide part of the property due to your advancing ages and to make the property more manageable for you to live in.

You will retain your residence and XXXX square metres of the property post the subdivision. You will continue to live in your residence on the property.

You have no previous experience of subdividing and developing land.

You will be undertaking the minimal work required by Council for approval of the subdivision like basic electrical and water connection and provision of driveways.

The subdivision costs will be minimal and will be funded from your private savings.

The 4 subdivided blocks will be sold as vacant land.

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 11-1

A New Tax System (Goods and Services Tax) Act 1999 section 11-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-15

Reasons for decision

Section 9-5 of the GST Act provides that you make a taxable supply when the supply is made for consideration, in the course of furtherance of an enterprise that you carry on, is connected with an indirect tax zone and you are registered or required to be registered.

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) provides the Commissioner' view on the meaning of carrying on an enterprise.

Paragraphs 258 to 261 of MT 2006/1 discusses trade vs investment assets and provides that assets purchased with the intention of holding them for a reasonable period of time, to be held as income producing assets or to be held for the pleasure or enjoyment of the person, are more likely not to be purchased for trading purposes.

Paragraphs 262 to 302 of MT 2006/1 considers when subdivision of land constitutes the mere realisation of a capital asset and when it constitutes a property development enterprise.

In your case, given that minimal development work will be undertaken to meet council requirements and that many of the indicators of trade as identified in paragraph 265 of MT 2006/1 are not present, your activities in relation to the subdivision and eventual sale of the 4 subdivided blocks will not constitute an enterprise in accordance with subsection 9-5(b) of the GST Act. It will be the mere realisation of a capital asset.

As the requirements of section 9-5 of the GST Act are not met, you will not be making taxable supplies in relation to the eventual sales of the 4 subdivided blocks and you will therefore not be required to pay GST on these sales.

Other information

Section 11-1 the GST Act provides that you are entitled to input tax credits for your creditable acquisitions. Section 11-5 of the GST Act provides that you make a creditable acquisition when you acquire anything solely or partly for a creditable purpose. You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise (Section 11-15 of the GST Act).

In your case, given that you are not conducting an enterprise in relation to the subdivision and eventual sales of the 4 subdivided blocks, your costs associated with the subdivision and sales are not creditable acquisitions and therefore no input tax credits are available in relation to these acquisitions.

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