Edited version of private ruling

Authorisation Number: 1011613665296

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Ruling

Subject: GST and enterprise

Question:

Are you carrying on an enterprise of property development?

Answers:

No, you are not carrying on an enterprise of property development.

Relevant facts:

You acquired a property post July 2000 as your residence.

A few years later, you subdivided it into a few lots. You sold the lot where your residence was and the residence was leased back to you.

You constructed a temporary accommodation on one of the bigger lot as your residence.

You listed your residence after a few years with a local real estate agent without any success.

Subsequently, you were approached by a potential purchaser advising that they would be interested in purchasing the back end of your residence.

For this subdivision to occur you must build a road on the property in order to satisfy the shire's conditions for subdivision approval.

You are unable to finance the construction costs of the road therefore the potential purchaser has verbally offered to fund the road construction, in order for you to complete the subdivision as part of a written offer and acceptance.

This subdivision would provide you with sufficient funds to construct a new principal residence on the land currently containing your residence and create an additional lot.

You will be minimally involved in the subdivision to the extent necessary as the landowner to ensure the subdivision is approved.

You are not registered for GST.

You have not been involved in land subdivision previously.

Reasons for decision

An enterprise is defined in terms of subsection 9-20(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), and includes an activity or series of activities, done:

· in the form of a business or

· 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 or

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 the 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 recurrent or regular nature of the activity;

· 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.

In your case, you purchased the property post July 2000 as your residence. You subdivided it into a few lots a few years later and sold the lot where your residence was and the residence was leased back to you.

You then constructed a temporary accommodation on one of the bigger lot as your residence.

You listed your residence after a few years with a local real estate agent without any success.

Subsequently, you were approached by a potential purchaser advising that they would be interested in purchasing the back end of your residence.

For this subdivision to occur you must build a road on the property in order to satisfy the shire's conditions for subdivision approval.

You are unable to fund the construction of the road therefore the potential purchaser has verbally offered to fund the road construction, in order for you to complete the subdivision as part of a written offer and acceptance.

This subdivision would provide you with sufficient funds to construct a new principal residence on the land currently containing your residence and create an additional lot.

You will be minimally involved in the subdivision to the extent necessary as the landowner to ensure the subdivision is approved.

In weighing up all the relevant indicators, we note that your activities in subdividing the property and sale of the subdivided lots will not satisfied most of the indicators of a business. As such, your activities in relation to the land development will not come within the definition of 'in the form of a business' as provided under paragraph 9-20(1)(a) of the GST Act.

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 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 the shire's requirements in order to obtain approval for the subdivision.

Based on the facts provided, we consider that your activities are not commercial enough in flavour to amount to being an enterprise in the form of an adventure or concern in the nature of trade.

Are you required to register for GST?

You are required to be registered for GST if:

· you are carrying on an enterprise and

· your annual turnover meets the registration turnover threshold.

In your case, as you are not carrying on an enterprise, you are not required to be registered under section 23-5 of the GST Act.

Are you making a taxable supply upon subdivision and sale of the allotments?

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, the sale of subdivided allotments only satisfies two of the above requirements, that is, it will be for consideration and is connected with Australia. Consequently, your sale of the subdivided allotments will not be a taxable supply under section 9-5 of the GST Act.