Edited version of private advice

Authorisation Number: 1052160354096

Date of advice: 31 August 2023

Ruling

Subject: GST - capital vs revenue

Question 1

Will the sale of the Subdivided Lots on the Land) by the Landowners be the mere realisation of a capital asset with the capital proceeds assessed under the capital gains provisions contained in Parts 3-1 and 3-3 of the ITAA 1997?

Answer

Yes.

Question 2

If the answer to question (1) is no, would CGT event K4 arise at the time the Agreement is entered into, with any subsequent proceeds received brought to account under the trading stock provisions?

Summary

As the answer to question 1 is yes, this question has not been addressed.

Question 3

Are you, the Landowners, making a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in relation to the sale of the Subdivided Lots located on the Land?

Answer

In relation to the sale of the Subdivided Lots, you are not making a taxable supply pursuant to section 9-5 of the GST Act as not all of the requirements provided in the section would be satisfied.

This ruling applies for the following periods:

Income year ending XX XX XX

The scheme commences on:

XX XX XX

Relevant facts and circumstances

1.         The Landowners are SMSFs and Australian tax residents.

2.         The Landowners each own the Land as tenants in common.

3.         The Land was originally acquired by the following entities in XXXX:

•         Person A

•         Person B

•         Person C

4.         Person A, B and C are siblings.

5.         The Other SMSF is a SMSF of which Person C is a member.

6.         On XX XX XX the following entities acquired the Land on advice from their tax adviser (the Partners):

7.         The Land has been owned by the wider family group since XXXX and used by the family and their associated entities for primary production activities since this time.

8.         Primary production activities have included cattle grazing, and more recently timber harvesting. The Land has been used to rotate cattle from block to block depending on the condition of the pasture, seasonal conditions, rainfall and long-range weather forecasts.

9.         Between XXXX and XXXX the Partners traded as a partnership. Following the exit of the SMSF3 in XXXX, any activities following this date by the Partners were undertaken in their individual capacity rather than as a member of a partnership.

10.      The Land's use has always been limited due to its carrying capacity, with the Land subject to continual dry seasons and droughts, has resulted in very little or no cattle grazing on the Land since XXXX. As a result, the Land was then used for timber harvesting due to it no longer being suitable for cattle grazing.

11.      At no time since registration has the partnership been registered for GST or required to be registered for GST.

12.      On XX XX XX, SMSF1 acquired the interest previously owned by SMSF3 pursuant to a binding financial agreement following the dissolution of a marriage. This resulted in ownership proportions of the property as follows (the Remaining SMSFs:

13.      The area has been identified as a Priority Development Area (PDA). This along with the prolonged drought has made it unviable to continue to use the Land for primary production. As a result, the Land was listed for sale in its current state, however no serious offers were received due to its limited access and harsh terrain.

14.      Whilst completing development work on land owned by associates, the Developer approached the Remaining SMSFs with the offer to develop the Land.

15.      The Other SMSF was unwilling to agree to the terms proposed in the Agreement by the Developer. As a result, on XX XX XX, the Landowners reached an agreement with the Other SMSF to acquire its portion of the property for $X million.

16.      To fund the above acquisition, the Landowners negotiated to receive a Participation Payment from the Developer of $X million as payment by the Developer for the right to participate in the development of the Land.

17.      The Landowners signed the Participation Payment Deed on XX XX XX. The Participation Payment was made on XX XX XX, being the date of settlement of the acquisition of the interest in the property owned by the Other SMSF.

18.      The Landowners used the proceeds of the Participation Payment to meet their liability owing to the Other SMSF.

19.      The terms of the Participation Payment are set out in the Participation Payment Deed (PPD) and the payment is refundable if the Agreement is termination in certain circumstances.

20.      The PPD stipulates that the Participation Payment is only to be used by the Landowners for the purposes of the settlement of the Acquisition Contract.

The Agreement

21.      The Landowners entered into the Agreement with the Developer on DD MMM XXXX to allow the Developer to develop the Land for land sales.

22.      The Agreement forms part of the facts of this ruling.

23.      The Agreement states:

The Landowner appoints the Developer to:

a)    carry out or procure the carrying out of the Development Services;

b)    develop the Land by facilitating the undertaking and carrying out of the Project Works; and

c)    otherwise complete the Project in accordance with the Project Documents and all applicable Laws and Requirements.

24.      Obligations of the Landowner at set out in the Agreement and include providing all assistance, and do all acts and things, as the Developer may reasonably require in connection with or incidental to applications for approvals and complete, sign and provide to the Developer all documents requested by the Developer.

25.      The Developers obligations are set out in X of the Agreement and include to:

•        undertake or procure others to undertake all Development Services in accordance with all applicable Laws and Requirements;

•        make, or join in as a party to, all applications for, or procure, all Project Approvals (to the extent that they have not been obtained prior to the Agreement Date);

•        provide or procure Funding for the Project;

•        execute, or procure the execution of, all documents required by any relevant Authority to complete the Project;

•        enter into, or procure the entry into of, all relevant Project Documents with suitably qualified Consultants to enable it to carry out all Development Services in the most economic, efficient, workmanlike and professional manner;

•        pay or procure the payment of all Project Costs;

•        identify and procure Project Buyers;

•        procure the execution of Sale Contracts for the Disposal of Subdivided Lots for amounts determined in accordance with the provisions of this Agreement;

•        authorise the collection and distribution of the proceeds of any Disposal of Project Assets in the manner set out in this Agreement;

•        deal with the Project Assets in the manner set out in this Agreement;

•        maintain proper books of account in accordance with Accounting Principles to ensure that the financial affairs and performance of the Project and all payments due to the Landowner and the Developer under this Agreement can be properly assessed, calculated and, if required, verified; and

•        do anything else which is reasonably required to complete the Project in substantially accordance with the Project Plans and the Project Program.

26.      The Landowner must grant the lease of the Land to the Developer on the date on which the Developer commences carrying out works on the Land who will surrender the lease to facilitate the settlement of a for the sale of a subdivided lot.

27.      The Developer must pay all holding costs during the terms of the Agreement.

28.      The Developer must effect and maintain insurances, including:

•         contract works or construction risks insurance

•         property insurance

•         a public liability insurance policy

•         employers' liability and workers' compensation insurance required by Law, and

•         industrial special risks insurance covering all real and personal property having reached practical completion against physical loss, destruction or damage.

29.      The title of the land will remain with the Landowners until transfer of ownership to an end buyer.

30.      The Landowners are not incurring any costs in respect of the development or financially contributing to the development and is only providing the unencumbered land. All development costs will be met by the Developer. In addition, all development control decisions, actions and risk management decisions will be taken by the Developer. The landowners will not be actively involved in the development in any agency or joint venture capacity.

31.      According to the Agreement:

•         The site area is approximately X

•         Total number of lots is X

•         Total area of lots is X.

Other relevant facts

32.      There was never an offer from the Developer to acquire the land, either in whole or in part. Any offers from the Developer always comprised of entering into a Development Agreement.

33.      The Landowners initially requested a fixed amount per lot as part of the contract negotiations. Given the significant challenges and implications of the current economic conditions as well as the uncertain projected outlook for the property market due to the ongoing impacts of COVID-19, this was not suitable for the Developer. In addition, there are significant development constraints requiring a substantial spend on siteworks to ready the land for development which the Developer was not prepared to take in the current environment given the associated business, cashflow and commercial risks and as such they renegotiated this to be a percentage of the sale price.

34.      Neither of the Landowners have ever been registered for GST, either alone or in partnership.

35.      The Subdivided Lots will be sold by the Landowners in their separate co-owner capacity.

36.      Neither of the Landowners have a history or experience in activities or in the business of land development, however related associates of the landowners have previously entered into the same contractual arrangements with the Developer to dispose of land in a similar location under similar circumstances.

37.      The Landowners do not currently receive any income from primary production. The only income the Landowners currently receive from the Land is rental income from a related party who carries on primary production activities.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Parts 3-1 and 3-3

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 Section 23-5

A New Tax System (Goods and Services Tax) Act 1999 Division 38

A New Tax System (Goods and Services Tax) Act 1999 Division 40

Reasons for decision

All references are to the Income Tax Assessment Act 1997 unless otherwise specified.

Question 1

Will the sale of the Subdivided Lots on the Land) by the Landowners be the mere realisation of a capital asset with the capital proceeds assessed under the capital gains provisions contained in Parts 3-1 and 3-3 of the ITAA 1997?

Summary

Yes.

Detailed reasoning

38.      In general, proceeds from the sale of land will be taxed for income tax purposes in one of the following ways:

•        assessable as ordinary income under section 6-5 of the ITAA 1997, where the land is held as trading stock and sold as part of carrying on a business of property development,

•        assessable as ordinary income under section 6-5 of the ITAA 1997, where land is not trading stock and is sold as part of an isolated commercial transaction entered into with a profit-making intention,

•        as statutory income under the CGT provisions under Parts 3-1 and 3-3 of the ITAA 1997, where the land is neither trading stock nor the subject of an isolated profit-making scheme or undertaking and the proceeds of sale are the mere realisation of a capital asset.

Carrying on a business of property development

39.      Paragraph 18 of Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? provides a summary of the main indicators for consideration to determine if a business is being carried on. These include:

•        significant commercial activity;

•        purpose and intention of the taxpayer in engaging in the activity;

•        intention to make a profit from the activity;

•        activity is or will be profitable;

•        repetition and regularity of activity;

•        activity is carried on in a similar manner to that of the ordinary trade;

•        activity is organised and carried on in a businesslike manner and systematically - records are kept;

•        size and scale of the activity;

•        a business plan exists;

•        commercial sales of product; and

•        taxpayer's knowledge or skill.

40.      For a business of property development and resale, the repetitive buying and selling of property is not necessary to establish that a business is being carried on. A single acquisition by a business commenced for the purpose of development, subdivision and sale will be sufficient to constitute a business activity (Taxation Determination 92/124: Income tax: property development: in what circumstances is land treated as 'trading stock'?).

41.      In addition to transactions that occur in the ordinary course of a taxpayer's business, transactions may occur which are outside of the ordinary course of a taxpayer's business. These transactions are referred to as an 'isolated transaction'.

Isolated transactions

42.      As explained in Taxation Ruling TR 92/3: income tax: whether profits on isolated transactions are income (TR 92/3), under certain circumstances, profits from an 'isolated transaction' can be ordinary income. Paragraph 35 of TR 92/3 states that profits on isolated transactions may be ordinary income if:

•        the intention or purpose of a taxpayer in entering into the transaction was to make a profit or gain; and

•        the transaction was entered into, and the profit was made, in the course of carrying on a business or in carrying on a business operation or commercial transaction.

43.      Paragraphs 56 and 57 of TR 92/3 set out what objective intentions the ATO considers will give rise to a profit made from an isolated transaction being assessable as income according to ordinary concepts. The requisite intentions are:

•        where a taxpayer acquires property with a purpose of making a profit by which ever means prove most suitable and a profit is later obtained by any means which implements the initial profit-making purposes;

•        where a taxpayer acquires property contemplating a number of different methods of making a profit and uses one of those methods in making a profit; and

•        where a taxpayer enters into a transaction or operation with a purpose of making a profit by one particular means but actually obtains the profit by a different means.

44.      It is not necessary that the intention or purpose of profit-making be the sole or dominant intention or purpose for entering into the transaction that gives rise to the profit. It is sufficient if profit-making is a significant purpose.

45.      If the transaction involves the sale of property, it is usually necessary that the taxpayer has the purpose of profit-making at the time of acquiring the property (paragraph 9 of TR 92/3). However, that is not always the case. As explained in the example at paragraph 41 of TR 92/3:

41. ... if a taxpayer acquires an asset with an intention of using it for personal enjoyment but later decides to venture or commit the asset either as the capital of a business or into a profit-making undertaking or scheme with the characteristics of a business operation or commercial transaction, the profit is income even though the taxpayer did not have the purpose of profit-making at the time of acquisition.

46.      In addition to a profit making intention the transaction must have a business or commercial character. Paragraph 47 of TR 92/3 states:

For a transaction to be characterised as a business operation or commercial transaction, it is sufficient if the transaction is business or commercial in character ... Whether a particular transaction has a business or commercial character depends very much on the circumstances of the case.

47.      No single factor or circumstance is determinative to characterise a transaction. Each must be weighed against all other factors. Paragraph 49 of TR 92/3 provides a number of factors which may be relevant in considering whether an isolated transaction amounts to a business operation or commercial transaction:

•        the nature of the entity undertaking the operation or transaction;

•        the nature and scale of other activities undertaken by the taxpayer;

•        the amount of money involved in the operation or transaction and the magnitude of the profit sought or obtained;

•        the nature, scale and complexity of the operation or transaction;

•        the manner in which the operation or transaction was entered into or carried out;

•        the nature of any connection between the relevant taxpayer and any other party to the operation or transaction;

•        if the transaction involves the acquisition and disposal of property, the nature of that property; and

•        the timing of the transaction or the various steps in the transaction.

48.      The cases of Statham & Anor v. Federal Commissioner of Taxation [1988] FCA 761 (Statham) and Casimaty, George v. Federal Commissioner of Taxation [1997] FCA 1388(Casimaty) provide guidance on when activities to subdivide land may amount to a profit-making undertaking or scheme. In both cases, farm land was subdivided and sold and based on the facts of those cases, the courts held that the sales of the subdivided lots were a mere realisation of a capital asset.

49.      Specifically in relation to the sale of subdivided land, the following factors have been considered by the courts to determine whether proceeds from the sale of subdivided land was income from carrying on a business or carrying out an isolated commercial transaction, or was from the mere realisation of a capital asset:

•        there is a change of purpose for which the land is held;

•        additional land is acquired to be added to the original parcel of land;

•        the parcel of land is brought into account as a business asset;

•        there is a coherent plan for the subdivision of the land;

•        there is a business organisation - for example a manager, office and letterhead;

•        borrowed funds financed the acquisition or subdivision;

•        interest on money borrowed to defray subdivisional costs was claimed as a business expense;

•        there is a level of development of the land beyond that necessary to secure council approval for the subdivision; and

•        buildings have been erected on the land.

Mere realisation of a capital asset

50.      The distinction between a 'mere realisation or change in investment' and 'an act done in what is truly the carrying on, or carrying out, of a business', is provided by Lord Justice Clerk in Californian Copper Syndicate v. Harris (Inspector of Taxes) (1904) 5 TC 159 at page 166:

What is the line which separates the two classes of cases may be difficult to define, and each case must be considered according to its facts; the question to be determined being - Is the sum of gain that has been made a mere enhancement of value by realising a security, or is it a gain made in an operation of business in carrying out a scheme for profit-making?

51.      Lord Justice Clerk's approach was adopted with approval by the High Court of Australia in Whitfords Beach[1], with Gibbs CJ stating at paragraph 3 on page 389:

When the owner of an investment chooses to realize it and obtains a greater price for it than he paid to acquire it, the enhanced price will not be income within ordinary usages and concepts, unless, to use the words of the Lord Justice Clerk..."what is done is not merely a realisation or change of investment, but an act done in what is truly the carrying on, or carrying out, of a business".

52.      These principles were applied in Statham, where it was held that the sale of a rural property that had been subject to four stages of subdivision was a mere realisation of the property. In their joint judgment, Woodward, Lockhart and Hartigan JJ provided at page 4076 that:

There is nothing surprising in the fact that they went about this realisation in a manner calculated to maximise their receipts. The fact that this occurred does not necessarily make the proceeds either profits from an undertaking or scheme, or income from a business.

Application of the law

53.      The Landowners do not have a history or experience in activities or in the business of land development. Accordingly, it is necessary to determine if this isolated transaction amounts to a business operation or commercial transaction.

54.      In addition to the factors in determining whether the disposal of the Land is an isolated transaction that amounts to a business operation or commercial transaction, is It is relevant to consider the factors considered by the courts that specifically relate to the sale of subdivided land.

55.      The following relevant factors, on balance, lead to a conclusion that the subdivision and disposal of the subdivided lots are the realisation of a capital asset:

•        the nature of the entity undertaking the operation or transaction;

­   You are SMSFs.

­   The Land has been owned by the wider family group since XXXX and used by the family and their associated entities for primary production activities since this time. You acquired your interest in the Land from associates on advice of your tax adviser, and a further interest as part of a financial agreement following the dissolution of a marriage.

­   Since your acquisition of your initial interests, the Land has been used in primary production until it was unviable to continue to use it for that purpose due to prolonged drought and the Land being in a Priority Development Area. As a result, you listed the Land for sale in its current state, however no serious offers were received due to its limited access and harsh terrain.

­   You do not have a history or experience in activities or in the business of land development and you have never been registered for GST.

•         The Developers approached the Landowners with the offer to develop the Property.

­   Whilst completing development work on land owned by your associates, the Developer approached you with an offer to develop the Property.

­   The Developer is undertaking and managing the development, subdivision, marketing and sale of, the Land for residential purposes (Project defined in clause X of the Agreement) and all Development Services.

­   The commercial activities, land works, and subdivision will be undertaken by the Developer pursuant to the Agreement, and not by you, the Landowners. The Landowners obligations under the Agreement are confined to executing Project Documents, doing all things necessary to ensure that the Developer is able to perform its obligations under the Agreement and obtain project approval and make available the unencumbered land.

­   The Landowners will not incur any costs in respect of the development or financially contribute to the development and will only provide the unencumbered land. All development costs will be met by the Developer. The Developer is also responsible for providing or procuring funding for the development and taking out the necessary insurances.

­   All development control decisions, actions and risk management decisions will be taken by the Developer. The Landowners will not be actively involved in the development in any agency or joint venture capacity.

­   The Developer is responsible for obtaining all relevant approvals, appointing solicitors or settlement agents for settlement of Sale Contracts, appointing agents to undertake marketing and promotion activities for the Development and perform the duties and provide the services required to sell the Subdivided Lots.

56.      The following factors indicate that the subdivision and disposal of the Subdivided Lots are less likely the realisation of a capital asset:

•        The size and scale of the project is significant. The Land is a total of X and will be subdivided into an expected X separate land lots covering a total area of X. Other areas of land will be roads and open spaces.

•        There is a level of development of the Land beyond that necessary to secure council approval for the subdivision:

­   The development of the Land will go beyond that necessary to secure council approval for subdivision. It is noted that all Development Services will be undertaken by the Developer and the Developer is responsible for funding it.

­   The Agreement provides that dwellings may be constructed on the subdivided lots under particular sale contracts, however the Landowners have no entitlement to a share of any consideration received for the construction of the dwelling.

•        To fund the acquisition of the Other SMSF's share of the Land, you as the Landowners, negotiated to receive a Participation Payment from the Developer as payment by the Developer for the right to participate in the development of the property which was used to acquire the Other SMSF's interest in the Land.

•        There is a coherent plan for the subdivision of the land and there is a business organisation:

­   There is a Development Agreement that sets out all the obligation of the Developer and the Landowners.

­   It is noted that the Developer is undertaking and managing the development, subdivision, marketing and sale of, the Land for residential purposes and all Development Services. The Landowners obligations are limited as mentioned above and they will not be actively involved in the development in any agency or joint venture capacity.

57.      The facts and circumstances outlined above, considered in light of the relevant factors considered by the courts, with no one factor determinative in isolation, leads to a conclusion that you are merely realising the Land in an enterprising way.

58.      Whilst the subdivision and sale arrangement does have some characteristics indicative of an isolated business or commercial transaction, it is considered that these factors are outweighed by the other factors that indicate the Landowners are ultimately assuming the risks and costs of the project to dispose of a capital asset in the most enterprising manner.

59.      This is indicated by factors which include:

•        the fact that the Landowners acquired the Land for use in primary production activities,

•        the absence of a profit making intention at the time of acquisition,

•        the use of the Land since its acquisition,

•        the considerable length of time the Property has been owned by the family group; and the unimproved nature of the Property over that period. The fact that the Developer will incur all development costs and will be responsible for all the control decisions, actions and risk management of the development further indicates that the Landowners are merely realising its asset in an enterprising way.

60.      In conclusion, the proceeds from the disposal of the Subdivided Lots will not be income from carrying on a business or from an isolated business or commercial transaction undertaken for the purpose of profit. It is considered that the Landowners are instead undertaking the subdivision and sale of subdivided lots to dispose of a capital asset in the most enterprising way available so as to maximise the proceeds of sale. The proceeds from the sale of the subdivided lots will not be assessable ordinary income under section 6-5 of the ITAA 1997, but it will be assessed under Parts 3-1 and 3-3 of the ITAA 1997.

Question 2

If the answer to question (1) is no, would CGT event K4 arise at the time the Agreement is entered into, with any subsequent proceeds received brought to account under the trading stock provisions?

Summary

No.

Detailed reasoning

61.      It is unnecessary to consider this question as the answer to question 1 is yes.

Question 3

Are you, the Landowners, making a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in relation to the sale of the Subdivided Lots located on the Land?

Summary

In relation to the sale of the Subdivided Lots, you are not making a taxable supply pursuant to section 9-5 of the GST Act as not all of the requirements provided in the section would be satisfied.

Detailed reasoning

In this reasoning for question 4, unless otherwise stated,

• all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)
• all legislative terms marked with an asterisk are defined in section 195-1 of the GST Act.
• all reference materials referred to are available on the ATO website www.ato.gov.au.

62.      A supply is a taxable supply where all the requirements specified in section 9-5 are met.

63.      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.

64.      Division 38 and 40 provide for certain supplies to be GST-free and input taxed respectively.

65.      We consider Divisions 38 and 40 do not apply to the facts of your case in relation to the supply of the Subdivided Lots. Accordingly, your supply will not be GST-free or input taxed. That is, you will be making a taxable supply if all the requirements specified in paragraphs 9-5(a) to (d) are met.

66.      In this case, the sale of the Subdivided Lots will be for consideration and, as the lots are located in Australia, the supply will be connected with the indirect tax zone. Accordingly, paragraphs 9-5(a) and (c) will be satisfied and you will be making a taxable supply provided the requirements in paragraphs 9-5(b) and (d) will also be met.

Paragraph 9-5(b) - Supply made in the course or furtherance of an enterprise that you carry on

67.      The concept of an 'enterprise' is a fundamental GST concept. A supply cannot be a taxable supply made by an entity unless the supply is made in the course or furtherance of an enterprise carried on by the entity. In addition, an entity cannot be registered for GST unless it is carrying on an enterprise.

68.      Subsection 9-20(1) provides, among other things, that an enterprise is an activity, or series of activities, done:

•        in the form of a business; or

•        in the form of an adventure or concern in the nature of trade.

69.      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) explains when certain activities will amount to an enterprise.Goods and Services Tax Determination GSTD 2006/6 provides that MT 2006/1 has equal application to the meaning of 'entity' and 'enterprise' for the purposes of the GST Act.

70.      MT 2006/1 includes the following guidelines:

159. Whether or not an activity, or series of activities, amounts to an enterprise is a question of fact and degree having regard to all of the circumstances of the case.

234. Ordinarily, the term 'business' would encompass trade engaged in, on a regular or continuous basis. However, an adventure or concern in the nature of trade may be an isolated or one-off transaction that does not amount to a business but which has the characteristics of a business deal.

240. Taxation Ruling TR 92/3 sets out the Commissioner's views of the general principles and factors that have been considered in determining whether an isolated transaction is of a revenue nature.

244. An adventure or concern in the nature of trade includes a commercial activity that does not amount to a business but which has the characteristics of a business deal. Such transactions are of a revenue nature...The fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature.

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 Taxation105 (Statham) and Casimaty v. FC of T106 (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.'

71.      Further, paragraph 178 of MT 2006/1 provides the main indicators of carrying on the business. These indicators are the same indicators extracted above in the response to Question 1, and similarly, paragraphs 240 and 265 of MT 2006/1 respectively provide that regard should be had to TR 92/3 when determining whether an isolated transaction is in the form of an adventure or concern in the nature of trade, as well as factors derived from case law in relation to isolated real property transactions. The relevant guidance in TR 92/3 and caselaw has also been extracted above in the response to Question 1.

72.      Taking into account the same factors and guidance outlined in the response to Question 1, we consider the analysis in the response to Question 1 also applies for GST purposes. That is, whilst the sale of the Subdivided Lots includes some characteristics that indicate the Landowners are carrying on an enterprise in the form of an isolated business or commercial transaction, there are also other factors which indicate that the sale of the Subdivided Lots is the mere realisation of a capital asset. This is shown by the fact that the Developer is ultimately assuming the financial risks and costs of the project and has control over the project, and the Landowners have no experience in land development and has allowed another entity (being the Developer) to carry out these activities.

73.      Accordingly, in an overall consideration of all the relevant factors, the Commissioner concludes that the Landowners are not carrying on an enterprise in relation to the sale of the Subdivided Lots. That is, the activities they are engaged in are not done in the form of a business or in the form of an adventure of concern in the nature of trade. Accordingly, paragraph 9-5(b) would not be satisfied and the Landowners will not be making a taxable supply in relation to the sale of the Subdivided Lots.

Paragraph 9-5(d) - required to be registered for GST

74.      For completeness, we will address the issue of whether the Landowners are required to be registered for GST. Section 23-5 provides that an entity is required to be registered for GST if:

•        the entity is carrying on an enterprise, and

•        the entity's GST turnover meets the registration turnover threshold (the threshold in this case is $75,000).

75.      In this case, the Landowners are not carrying on an enterprise in relation to the sale of the Subdivided Lots and accordingly section 23-5 cannot be satisfied. Therefore, the Landowners are not required to be registered for GST in relation to the sale.

[1] [1982] HCA 8.

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