Edited version of private ruling

Authorisation Number: 1011598882468

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Ruling

Subject: GST and registration

Question:

Are you required to register for GST upon subdivision and sale of portion of the allotment without any dwellings?

Answers:

No, you are not required to register for GST upon subdivision and sale of portion of the allotment without any dwellings.

Relevant facts:

You together with others purchased a block of with the intention of constructing individual homes as the principal places of residence.

A deed was entered into by each party whereby all parties agree, at the equal expense, to proceed with the development to permit construction of dwellings on the lots in accordance with approved engineering drawings and to register a community title plan of subdivision. It also provides total and permanent right of ownership over parcels of land defined in the agreement until such time that individual title to each lot is registered at the Land Titles Office, or equity in individual lots is varied in accordance with this agreement.

You purchased the lot of another party. You intend to sell your lot and the lot that you have purchased from the other party. At the time of sale, there will be no buildings on these lots

You are not registered for GST.

You have not claimed any input tax credits for the expenditure incurred to date.

Reasons for decision

Section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you are required to be registered for GST if:

· you are carrying on an enterprise and

· your annual turnover meets the registration turnover threshold.

It needs to be determined what the entity is here. In other words, 'you'.

Section 195-1 of the GST Act states:

You: if a provision of this Act uses the expression you, it applies to entities generally, unless its application is expressly limited.

Note: The expression "you" is not used in provisions that apply only to entities that are not individuals.

Are you a partner of the partnership of you and the others?

Goods and Services Tax Ruling GSTR 2004/6 (GSTR 2004/6) provides guidance on tax law partnerships and co-owners of property. Paragraph 8 states:

8. A partnership is defined in section 195-1 of the GST Act by reference to the definition of partnership in subsection 995-1(1) of the ITAA 1997. That definition states:

partnership means:

· an association of persons (other than a company or a limited partnership) carrying on business as partners or in receipt of ordinary income or statutory income jointly; or

· a limited partnership.

In your case, you and the others purchased the property jointly with the intention of constructing individual homes for personal occupation and use. Accordingly, we are of the opinion that this association of people between you and the others would not amount to a partnership as it does not meet the requirements of section 195 of the GST Act because there is no receipt of ordinary income or statutory income jointly. Consequently, you are not a partner of the partnership of you and the others.

Are you carrying on an enterprise?

An enterprise is defined in terms of subsection 9-20(1) of the GST Act, and includes 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, or …

The Australian Taxation Office (ATO) view of what constitutes an enterprise is contained in Miscellaneous Taxation Ruling MT 2006/1 (MT 2006/1).

Goods and Services Tax Determination GSTD 2006/6 states that the principles contained in MT 2006/1 apply equally to the terms 'entity' and 'enterprise' and can be relied on for GST purposes.

in the form of a business

In considering the term 'in the form of a business' we need to consider the indicators of a business. Paragraph 178 of MT 2006/1 lists main indicators of a business. These indicators are:

· a significant commercial activity;

· a purpose and intention of the taxpayer to engage in commercial activity;

· an intention to make a profit from the activity;

· the activity is or will be profitable;

· the activity is carried on in a similar manner to that of other businesses in the same or similar trade;

· activity is systematic, organised and carried on in a businesslike manner and records are kept;

· the activities are of a reasonable size and scale;

· a business plan exists;

· commercial sales of product; and

· the entity has relevant knowledge or skill.

· the recurrent or regular nature of the activity;

In your case, you purchased the property with the intention of constructing individual homes for personal occupation and use.

In weighing up all the relevant indicators, we note that your activities in subdividing the property and sale of portion of the allotment did not satisfy most of the indicators of a business.

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

Generally, an enterprise in the form of a business is characterised by recurrent and regular activity. On the other hand, isolated transactions with commercial characteristics are considered to be an adventure or concern in the nature of trade. However, an isolated transaction which is the mere realisation of an asset is not considered to be an enterprise in the form of an adventure or concern in the nature of trade.

An isolated transaction with commercial characteristics may be considered as an enterprise. Therefore, it is now necessary to consider whether your activities in subdividing your property and then selling a portion of the land have a commercial flavour sufficient to take the sale of the subdivided lots beyond the mere realisation of an asset.

Generally, where land is not acquired for the purpose of resale at a profit but which is subsequently sold as subdivided lots, we consider that the sale of the land will be the mere realisation of a capital asset where:

· the subdivision is not substantial, and

· the activities undertaken in relation to the subdivision have been minimal or limited to meeting council requirements in order to obtain approval for the subdivision.

In your case, you acquired the land for the purpose of building a home for personal occupation and use and at the time of sale, there will be no building on it.

On this basis, we consider that your activities are not sufficiently commercial in flavour to amount to being an enterprise in the form of an adventure or concern in the nature of trade.

As such, your activities in relation to the land development do not come within the definition of an enterprise for the purposes of GST under subsection 9-20(1) of the GST Act. That being the case, the supply of portion of the allotment will not be made in the course or furtherance of an enterprise that you carry on.

Consequently, as you are not carrying on an enterprise, you are not required to be registered under section 23-5 of the GST Act because one of the requirements of section 23-5 of the GST Act is not met.

Are you required to pay GST on the sale of the portion of the allotment without any dwellings?

GST is payable if you make a taxable supply. For the sale of real property to be a taxable supply, it must satisfy the requirements under section 9-5 of the GST Act, which states that you make a taxable supply if:

· you make the supply for consideration

· the supply is made in the course or furtherance of an enterprise that you carry on

· the supply is connected with Australia; and

· you are registered, or required to be registered.

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

All of the provisions of section 9-5 of the GST Act must be satisfied for the supply to be taxable.

In your case, we have determined that you are not required to be registered and you are not carrying on an enterprise. As such, not all requirements of section 9-5 of the GST Act are satisfied. Consequently, your sale of your portion of the allotment without any dwellings will not be a taxable supply under section 9-5 of the GST Act and no is payable.