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Ruling

Subject: GST and sale of real property

Question

Is GST payable on the sale of the subdivided land?

Answer

No, GST is not payable on the sale of the subdivided land.

Relevant facts and circumstances

You purchased the land a number of years ago. You arranged for the construction of a residence on the property and commenced occupying it shortly after the construction was completed. You continue to occupy the property as your residence.

You propose to subdivide the land into two lots. You intend to sell proposed Lot 2. You will retain the other lot with the existing dwelling.

You are selling part of the land because it has become too large for you to manage.

You provided a copy of the proposed contract for the sale of land which listed the purchaser and the purchase price.

Under your arrangement, the purchaser will do whatever is required to effect the subdivision into two lots.

You have not undertaken any commercial activity on the property.

The subdivision of the property is a one-off activity. The transaction is not part of systematic or organised transactions and is not carried out in a business like manner. You do not have a business plan and no commercial sales are involved.

Your purpose of using the land has not changed since you purchased it. You will continue to use the dwelling as your principal place of residence after the sale is completed.

You have not purchased additional land to effect the subdivision. The land has not been listed as a business asset. In addition, you have not borrowed funds to acquire or subdivide the property.

You are not currently carrying on any other enterprise and you are not registered for GST.

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 paragraph 9-5(a).

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-5(b).

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-5(c).

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-5(d).

A New Tax System (Goods and Services Tax) Act 1999 section 9-20.

Reasons for decision

GST is payable on any taxable supply that you make.

The sale of the subdivided land is a taxable supply if the supply satisfies all the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Section 9-5 of the GST Act states:

You make a taxable supply if:

a. you make the supply for ^*consideration; and

b. the supply is made in the course or furtherance of an ^*enterprise that you ^*carry on; and

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.

(*denotes a term defined in the GST Act)

Based on the information that you have provided, the proposed sale of the subdivided land is for consideration and is connected with Australia as the property is located in Australia. Therefore, the supply satisfies paragraphs 9-5(a) and 9-5(c) of the GST Act.

It remains to be determined whether the sale of the subdivided land is made in the course or furtherance of an enterprise that you carry on under paragraph 9-5(b) of the GST Act, whether you are required to be registered for GST under paragraph 9-5(d) of the GST Act, and whether the sale is GST-free or input taxed.

Enterprise

Section 9-20 of the GST Act provides that enterprise 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.

Miscellaneous Taxation Ruling MT 2006/1 provides the view of the ATO on the meaning of enterprise for the purposes of entitlement to an Australian business number. Goods and Services Tax Determination GSTD 2006/6 provides that the discussion in MT 2006/1 equally applies to the term enterprise as used in the GST Act and can be relied on for GST purposes.

MT 2006/1 provides that ordinarily, the term business would encompass trade engaged in, on a regular or continuous basis. However, an adventure or concern in the nature of trade may be an isolated or one-off commercial activity that does not amount to a business but which has the characteristics of a business deal. However, the mere realisation of investment or private assets does not amount to trade. Additionally, the fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature.

Paragraphs 262 to 265 of MT 2006/1 provide guidance to determine whether isolated property subdivision activities are an adventure or concern in the nature of trade. They state:

262. The question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions.

263. The issue to be decided is whether the activities are an enterprise in that they are of a revenue nature as they are considered to be activities of carrying on a business or an adventure or concern in the nature of trade (profit making undertaking or scheme) as opposed to the mere realisation of a capital asset. (In an income tax context a number of public rulings have issued outlining relevant factors and principles from judicial decisions. See, for example, TR 92/3, TD 92/124, TD 92/125, TD 92/126, TD 92/127 and TD 92/128.)

264. The cases of Statham & Anor v. Federal Commissioner of Taxation (Statham) and Casimaty v. FC of T (Casimaty) provide some guidance on when activities to subdivide land amount to a business or a profit-making undertaking or scheme. In these cases, farm land was subdivided and sold. Minimal development work was undertaken to meet council requirements and to improve the presentation of certain allotments. On the particular facts of these cases the courts held that the sales were a mere realisation of a capital asset.

265. From the Statham and Casimaty cases a list of factors can be ascertained that provide assistance in determining whether activities are a business or an adventure or concern in the nature of trade (a profit-making undertaking or scheme being the Australian equivalent, see paragraphs 233 to 242 of this Ruling). 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:

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

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

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

d. there is a coherent plan for the subdivision of the land;

e. there is a business organisation - for example a manager, office and letterhead;

f. borrowed funds financed the acquisition or subdivision;

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

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

i. buildings have been erected on the land.

Your situation is similar to example 33 in paragraphs 291 to 293 of MT 2006/1, which is an example of a subdivision of land that is not an enterprise. The subdivided land formed part of the land that was used as your principal residence for a number of years. You decided to subdivide the land as it has become too large for you to manage. Under your arrangement the purchaser will do anything required to secure approval for the subdivision into two lots. You will retain the part of the land that contains the family home.

Considering all the facts and circumstances in your case, the sale of the subdivided land is the mere realization of a private asset. The sale is not in the form of a business or an adventure or concern in the nature of trade.

Accordingly, the sale of the subdivided land is not made in the course or furtherance of an enterprise that you carry on and the requirement of paragraph 9-5(b) of the GST Act is not satisfied.

Therefore, as you do not satisfy all the requirements of section 9-5 of the GST Act, the sale of the subdivided land is not a taxable supply. Hence, GST is not payable on the sale of the subdivided land.

Please note that in this case, it is not necessary to consider whether you satisfy the condition at paragraph 9-5(d) of the GST Act, or whether the sale of the subdivided land is GST-free or input taxed.