Edited version of private advice

Authorisation Number: 4110078855854

Date of advice: 4 February 2020

Ruling

Subject: GST and sale of residential vacant land

Question

Will the sale of the residential vacant land be a taxable supply?

Answer

No

This ruling applies for the following period:

1 July 2019 - 30 June 2020

The scheme commences on: 1 July 2019

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

1.You are a qualified tradesperson.

2.You became registered for GST when you commenced working as a sole trader in 1 October 200X.

3.You purchased 'the Property" which is an existing brick dwelling around 200X and are the sole owner.

4.The sole purpose and intent of the property was for your principal place of residence.

5.Due to the size of the Property which consisted of a large backyard, you investigated the possibility of subdividing it into 2 parcels of land which is now known as:

a)     Land 1:

-        A parcel of land which includes the existing residence;

-        Settled on December 20XX.

-        This is an input taxed sale.

b)     Land 2:

-        A parcel of vacant residential land- which was the backyard;

-        An offer to sell has been received, however no contracts has been exchanged as you are currently awaiting the outcome of the GST private ruling application.

6.No other significant improvement other than fencing as required by the Council has been made on the Property.

7.No change of zoning has occurred - the property will remain zoned as R2 low density residential land.

8.You have not undertaken any previous subdivision or development activities.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-5

Reasons for decision

GST is payable on any taxable supply you make. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) 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 Australia; 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

(*denotes a term defined in section 195-1 of the GST Act)

If all the elements of section 9-5 of the GST Act are satisfied, an entity will be making a taxable supply.

In your case, you are making a supply of the property for consideration and sale is connected with the indirect tax zone. You are registered for the GST, therefore, paragraphs 9-5(a), 9-5(c) and 9-5(d) of the GST Act are satisfied. In addition the sale of the property is neither GST-free or input taxed.

Accordingly, we must determine if the sale of the property satisfies paragraphs 9-5(b) of the GST Act, that is whether the supply in the course or furtherance of an enterprise you carry on.

Subsection 9-20(1) in part defines enterprise as follows:

9-20 Enterprises

(1)   An enterprise is an activity, or series of activities, done:

(a)   in the form of a *business; or

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

The question of whether an entity is carrying on an enterprise is examined in Miscellaneous Tax 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).

Paragraph 159 of MT 2006/1 states that whether or not an activity constitutes an enterprise is a question of fact and degree depending on the circumstances of each individual case.

Paragraph 234 of MT 2006/1 distinguishes between activities done in the form of a business and those done in the form of an adventure or concern in the nature of trade. A business encompasses trade engaged in on a regular basis. An adventure or concern in the nature of trade includes an isolated or one-off transaction that does not amount to a business, but which has the characteristics of a business deal.

In your case, the activity of subdivision and sale of part of the property is an isolated transaction. In order to determine whether you made a taxable supply, we must first ascertain if the sale occurred in the course of carrying on an enterprise. It is necessary to consider whether the activities were of an adventure or concern in the nature of trade (profit-making undertaking or scheme) or whether they were the mere realisation of a capital asset.

In accordance to paragraph 263 of MT 2006/1 your activities in this situation are not an enterprise in that they are not of a revenue nature in the form of a business or in the form of an adventure or concern in the nature of trade. Your activities in relation to the sale of the subdivided block are a 'one off' undertaking for which you did not have a commercial purpose in mind. Based on the facts presented, in this instance, it is our view that this undertaking is a mere realisation of an asset.

Therefore you do not meet all the elements of section 9-5 of the GST Act. Accordingly, the sale will not be a taxable supply.

However, in the future if you carry on a similar type activity we may consider that you as carrying on an enterprise.

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