Edited version of private advice

Authorisation Number: 5010072163601

Date of advice: 1 December 2020

Ruling

Subject: GST and subdivision

Question 1

Is the sale of Lot A and B at xx a taxable supply pursuant to section 9-5 of the (Goods and Services Tax) Act 1999 ("GST Act")?

Answer

No - the sale is not a taxable supply as not all the requirements under section 9-5 of the GST Act are met.

However, in the future if you carry on a similar type of activity or if you were to sell more of the subdivided lots, we may consider that you are carrying an enterprise.

This ruling applies for the following period:

1 January 20xx - 31 December 20xx

The scheme commences on:

1 January 20xx

Relevant facts and circumstances

You are an IT manager.

You are not registered for GST.

On xx, you purchased an existing residential dwelling at xx (the "Property") for $x from xx through an auction.

You and your husband own the property as joint tenants.

You did not reside at the property after it was purchased.

The property was part of a compulsory subdivision ordered by the Minister of Planning under the 201x xx Paper Subdivision Legislation.

During our phone conversation on xx, you advised us of the following:

•         The Property was bought during an auction in xx;

•         Your intention was to use the Property for personal purposes;

•         The previous owner did not advise you prior to sale or disclose at the auction that they had already signed a voluntary contribution agreement with x which meant the existing house on the property was going to be demolished and the land would be subdivided;

•         You on realising the above you did not want to proceed with the purchase and sought legal options from your solicitors on xx as your intention was not to sub-divide the property;

•         To settle the matter amicably, the vendor offered to reduce the purchase price by $xx and to extend the settlement date by x weeks to compensate for this non-disclosure;

•         The Property settled on x and there was a tenant living at the premises then;

•         As prior agreements had already been entered to with x by the vendor, you were forced into honouring the contract for the property sub-division;

•         You were required to make a monetary contribution of $x by xx as per the contribution notice documentation provided to us;

•         You obtained a line of credit loan on your residential property from xx to finance the development costs of the project;

•         As a result of the subdivision your original property will be converted into x x square metre lots and x lot of approximately xx square metre will be created as an electrical easement for power lines running;

•         The xx square metre block with the easement is being rezoned RE-1 public recreational and could be subsequently acquired by Council for public recreation/reserve sometime in the distant future.

You have provided us with the requested documents such as the purchase contract, subdivision plan, loan documents, email correspondence between your solicitor and the vendor to substantiate your contentions above.

You plan to sell Lot A and Lot B of the subdivided lots when the sub-division is completed to recover some of your costs and to pay off your debts.

The remaining four lots (Lot C, Lot D, Lot E and Lot F) will be retained, and you plan to build a house on it in the future.

During our phone conversation, we also explained to you the difference between capital and revenue for GST purposes.

Reasons for Decision

These reasons for decision accompany the Notice of private ruling for xx

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Summary

Section 9-5 of the GST Act states you make a taxable supply if (a) you make a supply for consideration and (b) it is in the course or furtherance of an enterprise that you carry on and (c) the supply is connected with the indirect tax zone (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.

In your case, you are making a supply of two subdivided lots for consideration and the sale is connected with the indirect tax zone. You are not carrying on and enterprise and are not registered for the GST, therefore, only paragraphs 9-5(a) and 9-5(c) of the GST Act are satisfied.

As this is the first time you have undertaken a sub division and the circumstances that compelled you into carrying out a subdivision which was against your intention to retain the property as purchased , we have determined that the sale is not made in the course of carrying on an enterprise. 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. Therefore, your activity in relation to the sale of the x lots will be considered as a 'one off' undertaking for which you did not have a commercial purpose in mind.

Consequently, the disposal of x of the subdivided residential lots will be treated as a mere realisation of an asset as the activity of subdivision and sale of part of the property is an isolated transaction.

As you are not registered for GST, it needs to be determined in this case whether you are required to be registered. Under section 188-25 of A New Tax System (Goods and Services Tax) Act 1999, the value of this supply does not form part of calculating your GST turnover for the purposes of GST registration. This means that your turnover will not meet the registration threshold so you will not be required to register for GST.

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 of activity or if you were to sell more of the subdivided lots we may consider that you are carrying an enterprise.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).