Edited version of private advice

Authorisation Number: 1052357018678

Date of advice: 7 February 2025

Ruling

Subject: GST - sale of a subdivided lot

Question 1

Are you, liable to Pay GST under section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) on the sale of Lot 1?

Answer 1

Yes

This private ruling applies for the following period:

X XX 20XX - X XX 20XX

The scheme commenced on:

X XX 20XX

Relevant facts and circumstances

This private ruling is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

In this ruling, unless otherwise stated, the expressions 'you/your', 'the Trustee/Trustees' and 'Superannuation Fund' refer to you and are used interchangeably throughout this ruling.

You are a complying self-managed superannuation fund (SMSF) within the meaning of the Superannuation Industry (Supervision) Act 1993. You, The Trustees for this fund, are person A and person B. Person A and Person B are also the current members of this fund.

You are not and have never been registered for GST.

You acquired the property situated in the indirect tax zone (the Property) on X XX 20XX, for a specified amount.

The Property was vacant land of X square metres in size. The land was zoned XX and has not been rezoned since your purchase.

You purchased the land, which had subdivision potential, as an investment.

You engaged a local planning and project management company, to assist with the survey-strata subdivision application, site servicing, management, administration, and other tasks to facilitate the subdivision of the Property into x lots - the subdivided lots. A service proposal was received on X XX 20XX.

You engaged a structural engineer, to carry out site survey works, geotechnical reporting, design of works for subdivision and final inspection.

You contacted the Builder to provide potential building and design costings. The Trustees considered developing Lot 1.

The Builder provided a verbal, indicative price for building residential premises on Lot 2 only and did not provide a price for construction the Lot. The Builder provided an updated quote months later, which was substantially higher than the indicative price, so you did not proceed with the Builder.

On X XX 20XX, you submitted a Development Application seeking approval to subdivide the Property into two (2) residential lots as per plan of subdivision.

The plan of subdivision proposed two lots, Lot 1, and Lot 2.

The development application for the Plan was approved, subject to conditions.

You incurred costs to prepare the Property for subdivision into the two Lots.

The subdivision was completed in XX 20XX.

You constructed residential premises on Lot 2 and transferred it from the SMSF to Person B upon retirement, in XX 20XX. This is now your principal residence.

After the subdivision was finalised, you had no plans to sell or develop Lot 1. On X XX 20XX, as building costs were escalating, you advertised Lot 1 for sale.

In X 20XX you received an unexpected offer for Lot 1 of a specified price, which was accepted. Settlement was completed on X XX 20XX.

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 subsection 9-20(1)

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

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-10(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-15(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-20(1)

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

Reasons for decision

These reasons for decision accompany the Notice of private ruling for Simpson Superannuation Fund.

Question

Are you, liable to Pay GST under section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) on the sale of Lot 1?

Detailed reasoning

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 legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act.

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

Section 9-40 states that you are liable for GST on any taxable supply that you make.

Under section 9-5, an entity makes a taxable supply where the supply:

(a)           is made for consideration; and

(b)           is made in the course or furtherance of an enterprise being carried on by the entity; and

(c)           in connected with the indirect tax zone; and

(d)           is made by the entity who is registered or required to be registered for GST.

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

On the facts of this case there are no provisions in the GST Act to make the sale of Lot 1 GST-free or input taxed.

The sale of Lot 1 would satisfy the requirements of paragraphs 9-5(a) and 9-5(c). This is because the supply was made for consideration (the sale price of Lot 1 and Lot 1 is situated in Australia.

It now needs to be determined whether the sale of Lot 1 was made in the course or furtherance of an enterprise that you carry on under paragraph 9-5(b). Moreover, you are not registered for GST. Therefore, we also need to determine whether you are required to register for GST under paragraph 9-5(d) in relation to the sale of Lot 1.

Carrying on an enterprise

The term enterprise is defined for GST purposes in subsection 9-20(1) and includes, among other things, an activity or series of activities done:

(a)           in the form of a business; or

(b)           in the form of and adventure or concern in the nature of trade; or

...

(da)        by a trustee of a complying superannuation fund, or if there is no trustee of the fund, by the person who manages the fund.

As you are a complying superannuation fund, you are carrying on an enterprise for the purposes of the GST Act as per paragraph 9-20(1)(da). It now needs to be determined whether the sale of the Lot 1 is made in the course or furtherance of this enterprise.

The scope of paragraph 9-20(1)(da) is extensive in the sense that the activities done by the trustees of a complying superannuation fund are what forms the enterprise that they carry on. Therefore, any activities done by a trustee of a complying superannuation fund will necessarily be in the course or furtherance of that enterprise. Furthermore, a trustee of a complying superannuation fund is required under section 62 of the Superannuation Industry (Supervision) Act 1993 (SIS Act) to ensure that the fund is maintained solely for, among other things

the provision of benefits for each member of the fund on or after the member's retirement from any business, trade, profession, vocation, calling, occupation or employment in which the member was engaged...

Therefore, any activity done by you must be consistent with section 62 of the SIS Act, and consequently must be in the course or furtherance of your enterprise. The fact that you originally intended to acquire the Property for its subdivision potential and to construct premises to provide short term accommodation does not change that outcome. Consequently, your activities in subdividing the Property and the sale of Lot 1 were made in the course or furtherance of your enterprise as a complying superannuation fund, and paragraph 9-5(b) will be satisfied.

We now have to consider whether you are required to register for GST.

Section 23-5 provides that you are required to be registered for GST if you carry on an enterprise and your GST turnover meets the registration turnover threshold (currently $75,000).

Under subsection 188-10(1), you have a GST turnover that meets a particular turnover threshold if:

(a)           your current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the turnover threshold; or

(b)           your projected turnover is at or above the turnover threshold.

Subsection 188-15(1) provides that your current GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during the 12 months ending at the end of that month, other than:

(a)           supplies that are input taxed; or

(b)           supplies that are not for consideration (and are not taxable supplies under section 72-5); or

(c)           supplies that are not made in connection with an enterprise that you carry on.

Subsection 188-20(1) discusses how to calculate your projected GST turnover:

(1)           Your projected GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during that month and the next 11 months, other than:

(a)           supplies that are input taxed; or

(b)           supplies that are not for consideration (and are not taxable supplies under section 72-5); or

(c)           supplies that are not made in connection with an enterprise that you carry on.

In Collins & Anor ATF The Collins Retirement Fund v FC of T 2022 ATC 10-627 (Collins), the applicant argued that although they were carrying on an enterprise pursuant to paragraph 9-20(1)(da) they were not required to be registered for GST as the proceeds of the subdivided lots were excluded from turnover as they were capital in nature.

Further in Collins, at paragraphs 20 to 26 the following comments are made:

20.          In the income context, in determining whether the proceeds of sale of an asset are on the revenue or capital account, attention is focused upon whether the seller had an intention, at the time of acquisition of the asset, that the asset would be sought at a profit. The Commissioner submitted that for s188-25(a) purposes, the character of an asset must be determined at the time of the supply, describing this as a key point of distinction from the income tax framework.

21.          As the Commissioner pointed out, the expression 'capital asset' does not appear elsewhere in the GST Act. Further, the context of the characterisation of the supply of an asset as a transfer of ownership of a capital asset in s 188-25(a) - in determining an entity's projected turnover - is quite different to the role played by the revenue/capital distinction in determining the accessibility of receipts or deductibility of outgoings or losses.

22.          For instance, whether an amount is received in the course of a commercial or business-like transaction may be significant to or even determinative of whether the receipt is assessable to income tax. In contrast, the application of s188-25(a) will only arise for consideration where the supply under consideration is or would be made in the course of an enterprise the taxpayer carries on.

23.          Further, as the Commissioner pointed out, the GST Act deals separately with supplies and acquisitions. Section 188-25(a) is only relevant to supplies.

24.          These considerations point to whether the taxpayer has a profit-making intention or object at the time the relevant asset is acquired being of less significance than it is for the purposes of the capital vs revenue dichotomy in the income tax context. Accordingly, the Commissioner submitted that whether the taxpayer had a profit-making intention at the time of the acquisition of an asset is not determinative for s188-25(a) purposes. The focus must be on the supply of the time a supply of the asset is made (or is likely to be made).

...

26.          I respectfully adopt the proposition that for s 188-25(a) the character of an asset must be determined at the time the supply is made (or, I would add, likely to be made).

In your case, we consider these principles from Collins are applicable and that the character of Lot 1 needs to be determined at the time of its sale, and not whatever intentions may have been held for the former, unsubdivided Property.

The AAT in Collins also addressed the issue of engaging experts to assist in a property subdivision. This is discussed in paragraph 63 of the decision, which is extracted below:

63.          That the applicant, with no professional experience in land development, should engage others to carry out works and market the subdivided lots is scarcely surprising. The engagement of contractors to provide advice and carry out engineering and construction works and real estate agents to market land, is I would have thought, a hallmark of modern subdivision projects. While that may mean Mr Collins was relatively passive in respect of these activities, I do not accept that this weighs heavily in the applicant's favour in the context of a development of this nature which involved the undertaking of extensive skilled work.

Consistent with this aspect of the Collins decision, we consider the purpose for which you engaged a planning and project management company as well as an engineer is consistent with utilising experts to assist you in achieving the intended outcome of enhancing the return on the Property by subdividing it into 2 lots.

In light of the above analysis, Lot 1, the subject of this ruling, had the character of a revenue asset and therefore, the sale proceeds of Lot 1 will be included in your GST turnover. Given the specified sale price exceeded the turnover threshold of $75,000, you are required to register for GST in relation to the sale and in turn paragraph 9-5(d) is satisfied.

Conclusion

Your supply of Lot 1 satisfied all the requirements of section 9-5. Therefore, the sale Lot 1 was a taxable supply, and GST is payable under section 9-40.

Further information

Please note the following regarding the transfer of Lot 2.

The issue of whether the transfer of the Property was made in the course or furtherance of an enterprise that you carry on as required under paragraph 9-5(b) is discussed in Goods and Services Tax Determination GSTD 2009/1 Goods and services tax: is a supply by way of an in-specie distribution of an asset that is applied in an enterprise carried on by a discretionary trust to a beneficiary of the trust made 'in the course or furtherance of the trust's enterprise? (GSTD 2009/1)

Paragraph 9 of GSTD 2009/1 states:

9.             The application of an asset in an enterprise establishes the necessary connection between the supply of the asset and the relevant enterprise. The fact that the supply in question was made by way of an in-specie distribution rather than by sale does not alter the analysis. Entities can dispose of assets in a number of ways. The method of itself is not relevant to whether the supply is in the course or furtherance of the enterprise.

In this case you carried on an enterprise of land and property development and made a supply of Lot 2 and the new residential on the lot in carrying on your enterprise.

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