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Ruling

Subject: GST and sale of property

Questions

1. Will there be any GST implications once the super lot is excised and title of that part of the property is transferred to the developer before the final settlement?

2. Will there be any GST implications for the balance of the land if the super lot is transferred to the developer before final settlement?

3. Will there be any GST implications on the transfer of parts of the land to the statutory authority?

Answers

1. No, there will be no GST implications once the super lot is excised and title of that part of the property is transferred to the developer before the final settlement.

2. No, there will be no GST implications for the balance of the land if the super lot is transferred to the developer before final settlement.

3. No, there will be no GST implications on the transfer of parts of the land to the statutory authority.

Relevant facts and circumstances

You have a property on which you lived on for a number of years.

The property recently became part of the urban growth boundary and has since become zoned residential.

You do not conduct any business from the property and are not registered for goods and services tax (GST).

You have a developer interested in the property all at his own cost. He intends to pay you a fixed price plus a block from the future subdivided land. The price does not vary with his gains or losses if any.

The sale contract is an instalment contract with payments being made over a period of time.

For his development and financing processes the developer wants to do the development on your property in stages. The stages are called super lots. During the sale contract period the developer wants to be able to carry out planning and civil works to portion of the property, which he classes as super lot 1.

You will be on the property whilst some of the works are being carried out, and you expect to reside at the property for a period of time from signing..

Any contract signed with the developer will not be conditional on super lots occurring.

Part of your land has been designated by statutory authorities for a water retarding basin and for road widening. You may be directed into selling this portion of the land to the authorities prior to your settlement with the developer. The compensation provided for the land from the statutory authorities will become a deduction from the developer's fixed price, and paid to you.

Once the developer has made payment, which would account for half of the value of your property, he wants you to transfer that section of the property to him (a super lot subdivision). This is to enable the developer to finance the project.

Once you have transferred the title of the super lot to the developer, all further activity and subdivision is carried out and is the responsibility of the developer. There is no involvement or interest by you.

The balance of the land would be transferred to the developer at final payment.

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 23-5.

A New Tax System (Goods and Services Tax) Act 1999 Section 40-5.

A New Tax System (Goods and Services Tax) Act 1999 Section 40-65.

A New Tax System (Goods and Services Tax ) Regulation 1999 Regulation 40-5.09

Reasons for decision

1. Will there be any GST implications once the super lot is excised and title of that part of the property is transferred to the developer before the final settlement?

GST is payable on taxable supplies. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) 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 to Australia; and

· you are registered, or required to be registered for GST.

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

A supply is a taxable supply, if among other things the supply is made in the course or furtherance of an enterprise that you carry on. A transaction is a supply in the course or furtherance of an enterprise that is carried on, where the supplies can be considered to be connected to your enterprise. The term in the course or furtherance is not defined in the GST Act, but the term is wide enough to cover any supply made in connection with an enterprise and to cover natural incidents and things incidental to the core enterprise activities. Additionally, an act done for the purpose or object of furthering an enterprise, or achieving its goals, is in the furtherance of an enterprise although it may not always be in the course of that enterprise.

Are you carrying on an enterprise?

Section 9-20 of the GST Act defines 'enterprise' to include, amongst 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.

There is no definition of the phrase 'in the form of an adventure or concern in the nature of a trade' in the GST Act. An adventure or concern in the nature of trade includes a commercial activity that does not amount to a business, but which has the characteristics of a business. Without other factors being present, such activities will not be considered as an adventure or concern in the nature of trade.

Miscellaneous Taxation Ruling MT 2006/1 provides guidance on the meaning of 'enterprise' for the purposes of the A New Tax System (Australian Business Number) Act 1999 (ABN Act).

Paragraph 1 of Goods and Services Tax Determination GSTD 2006/6 provides that the guidelines in MT 2006/1 are considered to apply equally to the term 'enterprise' as used in the GST Act and can be relied upon for GST purposes.

Generally whether an enterprise is carried on is determined on the basis of the overall impression gained after examining the activities as a whole and the intention of the taxpayer undertaking the activity. In accordance with paragraph 159 of MT 2006/1, whether or not an activity, or series of activities, constitutes an enterprise is a question of fact and degree having regard to all of the circumstances of the case.

Section 195-1 of the GST Act defines carrying on an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

Paragraph 234 of MT 2006/1 distinguishes between a business and an adventure or concern in the nature of trade. It provides that the term business would encompass trade engaged in, or on a regular or continuous basis. However, an adventure or concern in the nature of trade may be an isolated or one-off transaction that does not amount to a business but which has the characteristics of a business deal.

In order to determine if an activity or series of activities amount to a business, the activity needs to be considered against the indicators of a business established by case law. Paragraph 178 of MT 2006/1 refers to the indicators discussed in Income Tax Ruling TR 97/11. Based on that discussion the indicators of a business include:

· 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.

As explained in TR 97/11, MT 2006/1 and GSTD 2006/6, there is no single test which determines the existence of a business. Paragraph 12 of TR 97/11 states whilst each case might turn on its own facts, the determination of the question is generally the result of a process of weighing all the relevant indicators. In particular, the nature of the activity, the entity's intention and the method of operation helps determine whether a business is being carried on.

The significant purpose or character indicator is closely linked to the other indicators. To determine whether there is a significant commercial purpose or character we need to consider if the entity has a business plan, an intention to make a profit, the size and scale of the activity, the amount of capital investment and whether the activities are carried on in a similar manner to that of other businesses in the same or similar trade.

The intention of the entity in engaging in the activity is an important indicator. It is necessary to consider whether there is an intention to make a profit or whether the activity can be better described as a hobby or the pursuit of a recreation or sporting activity. Activities in commencing the business are to be considered as carrying on an enterprise.

In your case, you intend to sell the property with the residence to the developer. The developer intends to subdivide the property into 'super lots' during the contract period. You will have no involvement in the further subdivision and sale of the land contained in these super lots.

We consider that you are not carrying on an enterprise of property development as you will have no involvement in the development of the land or the sale of the subdivided lots, you have no intention to engage in commercial activities, there will be no repetition and regularity of the activity and there is no corporate structure involved in the transaction.

Are you required to be registered?

Under section 23-5 of the GST Act, you are required to be registered if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold.

In your case, we are of the view that you are not carrying on an enterprise, hence you are not required to be registered for GST.

Will the sale of your property be a taxable supply under section 9-5 of the GST Act?

As you are not carrying on an enterprise and are not required to be registered for GST, not all of the requirements of section 9-5 of the GST Act will be satisfied.

In conclusion, as you are not registered or required to be registered for GST, all the conditions of a taxable supply are not satisfied and you will not be making a taxable supply of the property under section 9-5 of the GST Act.

2. Will there be any GST implications for the balance of the land if the super lot is transferred to the developer before final settlement?

As discussed in question 1 above, there will be not GST implications for the balance of the land if the super lot is transferred to the developer before final settlement.

3. Will there be any GST implications on the transfer of parts of the land to the statutory authority?

Goods and Services Tax Ruling GSTR 2006/9 examines the meaning of 'supply' in the context of the GST Act and considers compulsory acquisitions by a government authority.

GSTR 2006/9 provides that:

· if the authority initiates the compulsory acquisition process pursuant to its statutory right, then no supply will be made by you because you did not take any action to cause your legal interest in your property to be transferred or surrendered to the authority.

· if before a compulsory acquisition under a statute is made you and an authority enter into negotiations that result in you selling land under a standard land contract. The land in this case is not vested in the authority through the compulsory acquisition process. Instead, the interest in the land transfers as a result of settlement of the contract and execution of a transfer instrument. As such, you make a supply of land to the authority.

As you were found not to be carrying on an enterprise and are not required to be registered for GST then in either case there will be no GST implication on the transfer of parts of the land to the statutory authority.