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Ruling

Subject: goods and services tax (GST) and sale of property

Question

Will GST be payable on your sale of Lot Z?

Answer

No.

This ruling applies for the following periods:

The scheme commences on:

Relevant facts and circumstances

A property, which was originally Lot X (which is located in Australia) was transferred to you by a certain entity many years ago.

Subsequent to Lot X being transferred to you, the Council re-aligned the road from a certain locality to a certain locality so that in passing through Lot X it created a parcel of a certain number of hectares on one side of the road and left a certain number of hectares on the other side of the road.

In a certain year, you registered a plan of subdivision to create Lot Y for the block on one side of the road and Lot Z for the block on the other side of the road. You were the sole owner of Lot Y until you sold it. You have been the sole owner of Lot Z.

The partnership between you and another entity carried on a farming business on Lot X (the partnership used this land for grazing) since you became the owner of that land and until you sold Lot Y in a certain year

The partnership carries on a farming business on Lot Z (the partnership uses this land for grazing).

You do not charge the partnership rent for allowing it to use Lot Z.

You will sell Lot Z.

The partnership uses a property (the main property) a certain number of kilometres away from the subject land.

For many years, stock was moved between the main property and Lot X by droving sheep along the road. That road passes through a certain locality.

In more recent times and with heavier traffic usage of the road droving of stock from the main property to Lot X has become dangerous and impracticable and any movement of stock requires trucking which is greatly more expensive than droving.

The foregoing is the reason for selling the pieces of Lot X which were created by registration of a certain plan.

You did not acquire additional land to add to the original parcel of land (Lot X).

You did not bring Lot X or Lot Y or Lot Z to account as a business asset.

You did not set up a business organisation for the property subdivision activity.

You did not borrow funds to finance your acquisition of the original property (Lot X) or its subdivision.

You did not claim income tax deductions for interest on money borrowed to defray subdivisional costs.

You did not develop Lot X to a level beyond that necessary to secure Council approval for the subdivision.

You did not erect buildings on Lot X.

You state that you are not and you have never been in the business of buying and selling land.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

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 9-40

Reasons for decision

Summary

GST will not be payable on your sale of Lot 2, as you will not sell this property in the course or furtherance of an enterprise that you carry on.

Detailed reasoning

GST is payable by you where you make a taxable supply.

You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which states:

You make a taxable supply if:

· you make the supply for *consideration; and

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

· you *carry on; and

· 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-free

or *input taxed.

(*Denotes a term defined in section 195-1 of the GST Act)

We shall now consider whether your sale of Lot Z will be a supply you make in the course or furtherance of an enterprise that you carry on.

Section 9-20 of the GST Act defines enterprise to include:

· an activity or series of activities done in the form of a business;

· an adventure or concern in the nature of trade; and

· an activity or series of activities done on a regular basis in the form of a lease, licence or other grant of an interest in property.

Paragraph 9-20(2)(c) of the GST Act provides that an activity or series of activities done by an individual without a reasonable expectation of profit or gain is excluded from the definition of enterprise.

Miscellaneous Taxation Ruling MT 2006/1 provides guidance on the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number.

In accordance with Goods and Services Tax Determination GSTD 2006/6, MT 2006/1 has equal application to the meaning of 'entity' and 'enterprise' for the purposes of the GST Act.

Paragraph 265 of MT 2006/1 provides factors that indicate that a property subdivision activity may be a property subdivision enterprise. It states:

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:

· 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.

There was no change of purpose for which you held Lot X.

You did not acquire additional land to add to the original parcel of land.

You did not bring the land into account as a business asset.

You had a coherent plan for the subdivision.

You did not set up a business organisation in relation to the property subdivision activity.

You did not borrow funds to finance your acquisition of the land or the subdivision.

You did not claim income tax deductions for interest on money borrowed to defray subdivisional costs.

You did not develop the land beyond that necessary to secure council approval for the subdivision.

You did not erect buildings on the land.

Only one of the factors in paragraph 265 of MT 2006/6 was present in your case. We consider that the presence of this factor is not sufficient to classify your property subdivision activity as a property subdivision enterprise.

Your sale of Lot Z will not be part of a property trading enterprise, as we consider that you held Lot Z as a capital asset.

You do not operate the farming business that is carried on on Lot Z - instead the partnership between you and another entity carries on this farming business. Therefore, your sale of the property will not be a supply you make in the course or furtherance of this farming business.

You allow the partnership to use Lot Z in its farming business. You do not charge rent to the partnership for allowing it to use Lot Z in the farming business. Therefore, your activity of allowing the partnership to use Lot Z in its farming business is excluded from the definition of enterprise, as you do not make a profit from this activity.

Your sale of Lot Z will not be a supply you make in the course or furtherance of an enterprise that you carry on. Therefore, the requirement of paragraph 9-5(b) of the GST Act will not be satisfied.

As you will not satisfy all of the requirements of section 9-5 of the GST Act, you will not make a taxable supply of Lot Z. Therefore, GST will not be payable on your sale of this property.