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Edited version of private ruling
Authorisation Number: 1011504204269
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Ruling
Subject: Sale of subdivided land
Question
Are you liable for GST on your sales of subdivided vacant land?
Answer: Yes.
You are liable for GST on your sales of subdivided vacant land as you have made taxable supplies.
Relevant facts and circumstances
You are a charitable institution and are registered for GST.
You have advised that you were bequeathed two lots of land (one had a cottage on it).
You have advised that when you acquired the property the cottage was not in good condition but had basic living facilities.
You rented the property from the time you acquired the property.
After a time you decided to sell the property but were advised by your real estate agent that you would obtain a better return if you subdivided the property and sold the resulting blocks.
You then demolished the cottage and subdivided the land into three blocks of residential land.
The council imposed certain conditions on their approval of the subdivision.
You claimed the input tax credits on the cost of demolishing the cottage.
You sold two of the blocks to one recipient and the other block to another. The blocks were sold at market value.
You have advised that when you have sold properties over the last five years you usually do not improve or subdivide the properties. Regarding properties you keep and lease out, you have advised that you may, as required, carry out maintenance such as painting, replacing a kitchen, bathroom and or toilet, removing or replacing existing carpets and/or erecting a new fence, but otherwise you do not materially improve the property.
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 40-65,
A New Tax System (Goods and Services Tax) Act 1999 Section 40-75 and
A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.
Reasons for decision
You are required to pay the GST payable on any taxable supply that you make. Section 9-5 of the GST Act provides that you make a taxable supply if:
(a) you make the supply for consideration
(b) the supply is made in the course or furtherance of an enterprise that you carry on
(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.
In your case, the sale of the property was for consideration and the property is connected with Australia. Furthermore the sale of the vacant land to raise funds for your enterprise was in the course or furtherance of an enterprise that you carry on and you are registered for GST.
Based on the information you have provided there is no provision within the GST legislation under which the sale of your property would be GST-free as the sale of a going concern.
In consideration of whether the supply will be an input taxed supply, section 40-65 of the GST Act provides that the sale of real property is input taxed to the extent that the property is residential premises to be used predominantly for residential accommodation.
Section 195-1 of the GST Act defines residential premises to mean land or a building that is occupied as a residence or is intended to be occupied and is capable of being occupied as a residence. In relation to the characteristics of residential premises, paragraph 25 of Goods and Services Tax Ruling GSTR 2000/20 on commercial residential premises provides that:
Vacant land of itself can never have sufficient physical characteristics to mark it out as being able to be or intended to be occupied as a residence or for residential accommodation.
Therefore, vacant land cannot satisfy the definition of residential premises. Consequently, the sale of the subdivided vacant land is not an input taxed supply under section 40-65 of the GST Act.
You have therefore made a taxable supply under section 9-5 of the GST Act when you sold the subdivided blocks.