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Ruling

Subject: Goods and services tax (GST): partition of land

Question 1

Are you as one of the two co-owners of the property situated at a specified address (the Property) making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when the Property is partitioned so that you and your co-owner can each own your principal place of residence independently?

Answer

No, you as one of the two co-owners of the Property are not making a taxable supply under section 9-5 of the GST Act when the Property is partitioned so that you and your co-owner can each own your principal place of residence independently.

Relevant facts and circumstances

In a specified year, you and a close friend bought land with an existing house situated at a specified address (the Property) under your joint names. You and your friend are not related.

You and your friend did not acquire the Property in the course or furtherance of an enterprise. Hence, your friend and you did not apply for an Australian Business Number nor claim input tax credits for the construction cost. You and your friend did not rent out the existing house to tenants. The Property was purchased for the purpose of building two separate houses that would become your respective principal places of residence.

Both parties shared the land equally and shared the construction cost equally. Upon completion you and your friend moved into your respective houses nine months ago as your respective principal place of residence. The parties are in the process of entering into a Deed of Partition for subdividing the Property so that each party can own their home independent of one another.

The parties have not agreed in writing to the formation of the venture as a GST joint venture.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-40.

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

Reasons for decision

Section 9-40 of the GST Act provides that you must pay GST on any taxable supply that you make.

Under section 9-5 of the GST Act 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 for GST.

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

Where the supply is not made in the course or furtherance of an enterprise that you carry on then it is not captured by section 9-5 of the GST Act and is not taxable.

Goods and Services Tax Ruling Goods and services tax: partitioning of land (GSTR 2009/2) deals with the consequences of the partitioning of real property among joint tenants and tenants in common. Paragraphs 73 to 77 of GSTR 2009/2 provide as follows in respect to a supply not in the course or furtherance of an enterprise:

73. Rohan runs his own profitable business as a personal trainer. In July 2003, he and his sister, Roma (who does not carry on an enterprise), purchased land as tenants in common in equal shares. Both Rohan and Roma use the land to carry out a primary production activity as a hobby.

74. In July 2004, Roma wanted to build a house on the land in which to live. Rohan and Roma agreed to subdivide the land into 2 lots because Rohan wanted to continue the primary production activity. Rohan agreed to take Lot 1 and Roma agreed to take Lot 2.

75. Rohan and Roma arrange for the land to be surveyed. The land had a road running along its boundary and had some existing services such as electricity. Only minimal activity was required to subdivide the land.

76. Rohan and Roma each transferred their interest in part of the subdivided land to the other to give effect to the partition. The transfer by Rohan of his interest in Lot 2 to Roma is not made in the course or furtherance of the enterprise he carries on. Roma's transfer of her interest in Lot 1 to Rohan is also not in the course or furtherance of an enterprise.

77. The partition is the division of an asset which does not have a connection with the business carried on by Rohan as it is not applied in his enterprise. His hobby activity, which is a separate and distinct activity from the business, is not an enterprise. Roma also does not carry on an enterprise on or in relation to the land.

Based on the facts you have provided, all the activities involved in acquiring the Property, building the two homes and the partitioning of the land were of a private and domestic nature that do not amount to an enterprise for GST purposes.

Your situation is similar to the above example and a supply made by you as a co-owner under the partition will not be in the course or furtherance of an enterprise.

It follows that, you do not satisfy one of the preconditions (ie paragraph 9-5(b) of the GST Act) for a taxable supply to be made. Accordingly, you do not make a taxable supply under section 9-5 of the GST Act when you transfer your interest in part of the subdivided land to your friend (the other co-owner) to give effect to the partition of the relevant land.