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Ruling

Subject: GST: subdivision and sale of property

Question

Will your subdivision and sale of the property be a taxable supply?

Advice/Answers

No

Relevant facts and circumstances

You purchased the property, in your name, a number of years ago.

It has been used as your residence since it was purchased.

You are investigating the possibility of sub-dividing the property into additional lots.

You will continue living in the existing house, which would be situated on one of the lots.

You intend to sell the other lots, which would be vacant land.

The property is zoned residential.

You will only be doing whatever is required to meet Council conditions of approval. You anticipate that this may cost $xxx and will include water connection, electricity connection and an easement for access to the rear blocks.

You have not undertaken this type of activity in the past.

You are not registered for goods and services tax (GST)

Reasons for decision

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) a supply becomes a taxable supply if;

· the supply is made for consideration and

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

· the supply is connected with Australia

· the entity making the supply is registered or required to be registered

However your supply is not a taxable supply if it is GST free or input taxed.

In your circumstance, there are no provisions under which your supply of vacant land will be GST-free or input taxed. Therefore where the proposed sale of the property satisfies all the four criteria, the supply will be a taxable supply and subject to GST.

Supply is made for consideration

You will be supplying the property for consideration and hence the first criteria will be satisfied.

Supply is made in the course of furtherance of an enterprise that is carried on

The definition of the term enterprise under section 9-20 of the GST Act includes among other things 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

· on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property

In determining whether the activities relating to an isolated transaction such as the proposed sale of your property constitute an enterprise or a mere realisation of a capital asset, it is necessary to examine the factors set out in paragraph 265 of Miscellaneous Taxation Ruling MT2006/1 the meaning of entity carrying on a an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1). If several of these factors are present it may be an indication that a business or an adventure or concern in the nature of trade is being carried on. These factors are as follows:

· there is a change of purpose for which the land is held;

· additional land is acquired to be added to the original parcel of land;

· the parcel of land is brought into account as a business asset;

· there is a coherent plan for the subdivision of the land;

· there is a business organisation for example a manager, office and letterhead;

· borrowed funds financed the acquisition or subdivision;

· interest on money borrowed to defray subdivisional costs was claimed as a business expense;

· there is a level of development of the land beyond that necessary to secure council approval for the subdivision; and

· buildings have been erected on the land.

Your proposal is to sub-divide your principal place of residence, retain the subdivided lot containing your house and sell the vacant lots. You will not be developing the land beyond what is required to secure council approval for the subdivision. None of the other factors stated apply to your situation.

MT 2006/1 provides the following example

Example 33

291. Ursula and Gerald live on a 2.5 hectare lot that they have owned for 30 years.

292. They decide to sell part of the land and apply to subdivide the land into two 1.25 hectare lots. The survey and subdivision are approved. They retain the subdivided lot containing their house and the other is sold.

293. Ursula and Gerald are not carrying on an enterprise and are not entitled to an ABN in respect of the subdivision as the subdivision and sale are a way of disposing of some of the land on which their home is situated. It is the mere realisation of a capital asset.

Therefore in respect of the subdivision and subsequent sale of the property, you are not carrying on an enterprise. The subdivision and sale are a way of disposing of some land on which your home is situated. It is the mere realisation of a capital asset.

Supply is connected with Australia

This criterion has been satisfied as the property is located in Australia.

The entity making the supply is registered or required to be registered

You are not registered for GST. One of the key elements to the requirement for GST registration is that of conducting an enterprise. The entity must be carrying on an enterprise to register for GST. Your activity of sub-division and subsequent sale of the property is not made in the course of furtherance of an enterprise that you carry on. Therefore you are not required to be registered for GST.

As your subdivision and sale of the property does not satisfy all of the requirements of section 9-5 of the GST Act, it will not be a taxable supply.