Edited version of private advice

Authorisation Number: 1052399230327

Date of advice: 13 June 2025

Ruling

Subject: CGT - main residence exemption

Question 1

Was the sale of Units (the Properties) taxable supplies under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer 1

Yes.

This ruling applies for the following periods:

XX XXX 20XX to 30 June 20XX

Relevant facts and circumstances

You were registered for Good and Services Tax (GST) from XX XXX 20XX to 30 June 20XX. You were registered as you were carrying on a farming enterprise.

You purchased X properties for $XXX,XXX which had an existing dwelling, and a converted shed constructed on the property.

Both the existing dwelling and converted shed were tenanted at the time of purchase and continued to be tenanted for over XX years.

You purchased the neighbouring property for $XXX,XXX which had an existing dwelling.

The existing dwelling was tenanted at the time of purchase and continued to be tenanted.

One of the existing dwelling suffered a major water leak and consequently, became unhabitable and structurally unsound, therefore the decision was made to demolish the existing dwelling.

To demolish the existing dwelling, you engaged with a local builder and were advised by Council that a formal DA was required in order to demolish a property on the basis of it being uninhabitable that had a heritage zoning so what would be built to replace it, was in accordance with the replacement of heritage buildings regulations.

The existing dwelling was demolished, however no further work took place on the construction of the dwelling as per the development application for several years.

You were offered and acquired XXX square metres of the rear yard X by way of boundary adjustment for $XX,XXX.

The acquisition of this yard allowed the rear yard of Y to become wider, making it more viable for shed construction to store motor vehicles, farm vehicles, farm motor bikes and other plant and equipment in the future.

You were approached by a developer who was interested in developing on the rear land of Y-Z which included the addition rear yard acquired (the Land). However, the Developer could not afford to purchase the Land and the existing dwelling at Y as well as fund the development.

As DA was still in effect, the developer proposed the construction of X new residential premises which would consist of X residential units and X stand-alone residence on the Land.

Determination of a development application granted consent for construction of X single storey residential dwellings and X lot consolidation on the Land.

You entered into a joint venture agreement as an unincorporated joint venture with XXX Pty Ltd and XXX Investments Pty Ltd (the Developer) to carry out the construction of the proposed X residential premises (the Project) as you wanted to realise the capital value of the Land without assuming commercial risk of development and the developer wishes to develop the Land without purchasing it from you.

Under the joint venture agreement:

•                     you would make available to the Developer, through a subdivision, all the vacant land at Y-Z (once the converted shed on Z was demolished)

•                     you and the developer agreed that the Developer would construct X residences on the Land, comprising of X residential units and X stand-alone residence.

•                     upon completion of the Project you would be entitled to retain Unit X and will occupy for yourself

•                     you will be paid $XXX,XXX for each of the other X residences (the Properties) upon the sale of from the Developer at the completion of the Project in return for making the land available.

•                     each party will be responsible for the payment of their own taxation payable including Goods and Services Tax (GST), Capital Gains Tax (CGT) or Income Tax payable

•                     you were the titleholder of the Land and as such were to enter into contracts to complete the sales of the Properties as required by the Project

•                     subject to receipt of the Lot Price, upon receipt of Sales Proceeds you were to release such funds to the Developer to attend to payment of any Development Costs and payment to the Developer

•                     any expenses you contributed to during the Project, such as rates and land tax, would be paid or reimbursed by the developer

•                     you would also retain the old stand-alone house which was not part of the Project which remained vacant during the building period due to disruptions in services such as sewer, power, electricity and gas. It would remain a rental property as income for you after completion of the Project.

•                     the Developer managed and carried out the Project and was responsible for utilising contractors, agents and consultants to complete the Project and entered into any relevant contracts in relation to the Project

•                     the Developer paid all Project costs including but not limited to XXX costs, XXX costs, XXX fees, costs of XX, XX, XX, XX and other services necessary to complete the Project and all other necessary building costs

•                     the Developer was responsible for payment of all holding charges including XX XX rates, and land tax and insurances commencing from XX XXX 20XX to completion of the Project

•                     the Developer was responsible for legal and professional expenses, XX fees, XX fees relating to the Project

•                     the Developer was responsible for advertising the sale of the Properties or engage in real estate agents to attend to the sale of the Properties

•                     the Developer was entitled to the profit made on the sale of each of the other X residences after Development costs and payments to you of $XXX,XXX (for each of the Properties sold).

The Project was completed on or about XX XXX 20XX, and as the title holder of the Properties you entered into contracts to sell and complete the sales of X of the Xproperties constructed.

Occupation Certificate for the X single storey dwellings and attached garages was issued on XX XXX 20XX.

Occupation Certificate for the single dwelling was issued on X XX 20XX.

The Developer received all the proceeds from the sale of the properties directly by the conveyancing solicitor at each respective sale of property settlement as per the joint venture agreement.

The Developer did not provide you with any invoices in relation to the development costs or payment to the developer.

Units were sold during the 20XX financial year totalling $X,XXX,XXX

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 section 23-5

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

A New Tax System (Goods and Services Tax) Act 1999 section 40-35

A New Tax System (Goods and Services Tax) Act 1999 section 40-65

A New Tax System (Goods and Services Tax) Act 1999 section 40-75(1)

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

Reasons for decision

Detailed reasoning

Section 9-5 provides that a supply is a taxable supply if:

(a)           the supply is for consideration

(b)           the supply is made in the course or furtherance of an enterprise that the entity carries on

(c)           the supply is connected with the indirect tax zone, and

(d)           the supplier 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.

There are no provisions in the GST Act relevant to your circumstances that would make the sale of the Properties GST-free.

Input taxed supplies

Section 40-65 of the GST Act provides that sales of residential premises are input taxed to the extent that the property is residential premises to be used predominantly for residential accommodation. However, the sale is not input taxed to the extent that the residential premises are 'commercial residential premises' or 'new residential premises' other than those used for residential accommodation before 2 December 1998.

The term 'new residential premises' is defined under subsection 40-75(1) of the GST Act, and it includes premises that have been built, or contain a building that has been built, to replace demolished premises on the same land.

In your case, the that you built on the Land is considered to be 'new residential premises' because the premises were built on the same land after removing the existing premises and were sold after completion.

Therefore, the X newly constructed residential premises fall within subsection 40-75(1) of the GST Act. The supplies of the residential premises are not input taxed.

The sale of the Properties satisfies paragraphs (a) and (c) of section 9-5. That is, the supply is for consideration and the Properties are connected with the indirect tax zone as the Properties are in Australia.

Whether or not your sale of the Properties will be a taxable supply depends on:

•                     whether or not the sale is in the course or furtherance of an enterprise you carry on; and

•                     whether or not you are required to be registered for GST (as you are not currently registered for GST).

Enterprise

Section 9-20 provides that the term 'enterprise' includes, among other things, an activity or series of activities done:

•                     in the form of a business;

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

•                     on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.

Section 195-1 states that the phrase 'carrying on' in the context of an enterprise includes 'doing anything in the course of the commencement or termination of the enterprise'.

In this case, you own a number of residential properties that you rent out. As such we consider that you carry on an enterprise of leasing, being activities done on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.

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 guidelines on the meaning of carrying on an enterprise.

Paragraph 1 of Goods and Services Tax Determination GSTD 2006/6 Goods and services tax: does MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999? provides that the guidelines in MT 2006/1 are considered to apply equally to the term 'enterprise' as used in the GST Act and can be relied upon for GST purposes.

Paragraphs 170 to 176 and 233 to 242 of MT 2006/1 discuss the meaning of the phrase 'in the form of' a business and an adventure or concern in the nature of trade, respectively.

The phrase 'in the form of a business' clearly includes a business and the use of the phrase 'in the form of' indicates a wider meaning than the word 'business' on its own (refer to paragraph 170B of MT 2006/1). However, the phrase 'in the form of' does not have the effect of extending the reach of 'enterprise' to those activities which are in the form of a business but would not, in the ordinary meaning of 'business' be considered such. The activity must still be reasonably intended to be profit-making. (refer to paragraph 170A of MT 2006/1).

We consider that one-off and isolated property transactions can fall within something done in the nature of trade. This is particularly in the circumstances where the property was purchased, developed (although this may not be necessary) with the intention to resell at a profit. Paragraph 237 of MT 2006/1 provides:

237. The term 'profit making undertaking or scheme' like the term 'an adventure or concern in the nature of trade' concerns transactions of a commercial nature which are entered into for profit-making, but are not part of the activities of an on-going business. Both terms require the features of a business deal....

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. (refer to paragraph 234 of MT 2006/1)

While an activity such as the selling of an asset may not of itself amount to an enterprise, account should be taken of the other activities leading up to the sale to determine if an enterprise is carried on.

Paragraph 252 of MT 2006/1 states that improving a property beyond preparing an asset for sale, to bring it into a more marketable condition and gain a better price suggests an element of trade.

Paragraphs 262 to 302 of MT 2006/1 discuss isolated transactions and sales of real property.

Paragraphs 262 and 263 of MT 2006/1 provides that the question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions. 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.

Paragraph 265 of MT 2006/1 provides a list of factors we consider in determining whether a property subdivision activity is a business or an adventure or concern in the nature of trade. It states:

265. From the Statham and Casimaty cases a list of factors can be ascertained that provide assistance in determining whether activities are a business or an adventure or concern in the nature of trade (a profit-making undertaking or scheme being the Australian equivalent, see paragraphs 233 to 242 of this Ruling). If several of these factors are present it may be an indication that a business or an adventure or concern in the nature of trade is being carried on. These factors are as follows:^[107]

•                     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; developer incurred

•                     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.

In determining whether activities relating to isolated transactions are an enterprise or are the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each particular case. This may require a consideration of the factors outlined above, however there may also be other relevant factors that need to be weighed up as part of the process of reaching an overall conclusion. No single factor will be determinative rather it will be a combination of factors that will lead to a conclusion as to the character of the activities.

In this case, your activities involved acquiring Y-Z which had X existing dwelling and a converted shed which were rented out since purchase. The decision was made to demolish the existing dwelling at Y when it became inhabitable in 20XX, and you engaged with the Developer who was granted for DA. You acquired additional land in 20XX by way of a boundary adjustment, totalling XXX square metres from the rear yard of X for $XX,XXX. The Developer was granted DA on XX XXX 20XX for the development construction of X single storey residential dwelling and X lot consolidation. (as you were the title holder of the Land). You engaged with the developer to carry out the demolition of the converted shed at Z and made all vacant land available for the Developer to carry out the Project and construct the Properties. In return for making the land available, you would retain Unit X from the Project and the existing dwelling.

Given the above, we consider that your activities involving the acquisition of the Y - Z, the acquisition of additional land, the demolition of the existing dwelling and converted shed and engaging with the Developer to construct the X new residential premises constitutes activities done in the form of an adventure or concern in the nature of trade and thus 'carrying on an enterprise' for the purposes of GST.

As you are not registered for GST, we will have to consider whether or not you are required to be registered for GST.

Are required to be registered for GST?

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

(a)           are carrying on an enterprise; and

(b)           you meet the registration turnover threshold.

Turnover

The meaning of GST turnover is contained in Division 188. Section 188-10 provides that your GST turnover will meet the registration turnover threshold if:

a)            your current GST turnover is at or above the threshold ($75,000) and the Commissioner is not satisfied that your projected GST turnover is below $75,000, or

b)            your projected GST turnover is at or above $75,000.

Your 'current GST turnover' is the sum of your turnover for the current month and the previous XX months. However, turnover from making input taxed supplies are not included when calculating your current GST turnover.

Your 'projected GST turnover' is the sum of your turnover for the current month and the next XX months. Likewise, turnover from making input taxed supplies are not included when calculating your projected GST turnover.

We have already established above that you are carrying on an enterprise, initially an enterprise of leasing and subsequently an enterprise premises of property development. As discussed above, turnover from your supplies of residential premises by way of lease are not taken into account when calculating whether your turnover meets the GST registration turnover threshold.

However, proceeds from your sales of 'new residential premises' are included when calculating whether your turnover meets the GST registration turnover threshold and are considered connected to your enterprise of property development.

We have already established above that you are carrying on an enterprise, initially an enterprise of leasing and subsequently an enterprise premises of property development. As discussed above, turnover from your supplies of residential premises by way of lease are not taken into account when calculating whether your turnover meets the GST registration turnover threshold.

However, proceeds from your sales of 'new residential premises' are included when calculating whether your turnover meets the GST registration turnover threshold and are considered connected to your enterprise of property development.

As determined above, you are carrying on a property development enterprise. Hence, you satisfy the requirement in paragraph 23-5(a) of the GST Act.

As the sale of the Properties was $X,XXX,XXX your turnover will be over $XX,XXX and you will be required to be registered for GST.

Conclusion

Given the facts of this case, the sales of the Properties will satisfy all the positive limbs of section 9-5 of the GST Act and are neither GST-free nor input taxed. Therefore, the sales will constitute a taxable supply as defined for GST purposes. You are required to be registered for GST and GST is payable on the sale of the Properties because all the requirements of section 9-5 are satisfied.

Additional information

Claiming GST Credits

As the sale of the Properties are a taxable supply, you may be eligible to claim GST credits for the construction costs related to the Project.

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