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Ruling

Subject: GST and sale of vacant land

Question 1

Is the sale of the vacant block of land subject to goods and services tax (GST)?

Answer

No, the sale of the vacant block of land is not subject to GST

Relevant facts and circumstances

Some time ago, the house and land at two adjacent properties were purchased as tenancy in common with another person as an investment. The boundary between both properties was realigned and the property at one of the properties was sold. The other property was retained and the residence leased.

In a particular year, one of the parties declared bankruptcy and their share was purchased from the trustee. The residence was leased.

Subsequently, due to an order by a local authority the house was demolished and all materials had to be removed by the following year. This order was complied with.

Since this time, the property has not been used for any purpose including no income earned from any activities and no deductions claimed.

You now wish to sell the asset and are not registered for GST.

Relevant legislative provisions

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

Reasons for decision

You are required to remit GST on any taxable supplies you make. One of the requirements for a taxable supply is that the supply is made in the course or furtherance of an enterprise that you carry on.

Section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) defines the term enterprise to include activities done in the form of a business or in the form of an adventure or concern in the nature of trade.

The Tax Office view on the meaning of the term enterprise is explained in detail in Miscellaneous Taxation Ruling MT 2006/1 (MT 2006/1). Paragraph 159 of MT 2006/1 states that whether or not an activity constitutes an enterprise is a question of fact and degree depending on the circumstances of each individual case.

Paragraph 234 of MT 2006/1 distinguishes between activities done in the form of a business and those done in the form of an adventure or concern in the nature of trade. A business encompasses trade engaged in on a regular basis. An adventure or concern in the nature of trade includes an isolated or one-off transaction that does not amount to a business but which has the characteristics of a business deal.

The intended sale of the vacant lot in your case is an isolated transaction. In order to determine whether the sale is an enterprise we must determine if it constitutes an adventure or concern in the nature of trade. It is necessary to consider whether the activity is done under a profit-making scheme or whether they it is the mere realisation of a capital asset.

Paragraph 265 of MT 2006/1 lists a number of factors which can be used to determine whether activities in relation to a sale of property are done under a profit-making scheme. Paragraph 265 of MT 2006/1 provides that 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.

In determining whether activities relating to isolated transactions are an enterprise or are the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each particular case. This may require a consideration of the factors outlined above. However, there may also be other relevant factors that need to be weighed up as part of the process of reaching an overall conclusion. No single factor will be determinative. Rather, it will be a combination of factors that will lead to a conclusion as to the character of the activities.

In applying the above factors to this case we find that:

· There is no change of purpose for which the land is held. It has remained a capital asset.

· No additional land was acquired.

· The land was not used in connection with any business.

· There is a plan for the subdivision of the land.

· No buildings have been erected on the land since the particular year, nor was the land used for any other purpose.

· The land was not used to earn any income since the house was demolished.

· No tax deductions were claimed from this vacant land.

Having given consideration to the above factors, it is our view that the activities of subdivision and sale of your property are a way of disposing of vacant land which has not been used in connection with your business. This activity is the mere realisation of a capital asset, and is not a business or an adventure or concern in the nature of trade.

You are not considered to be carrying on an enterprise with regard to the sale of your vacant land for the purposes of section 9-20 of the GST Act. As such, the sale of the vacant land is not a taxable supply and is not subject to GST.