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Ruling

Subject: GST and subdivision of land

Question 1

Is goods and services tax (GST) payable on your sale of subdivided land?

Answer

No.

Relevant facts and circumstances

You are an individual/sole trader. You hold an ABN but you are not currently registered for GST.

You purchased your property (several acres in size) in the 1970s.

The property has been your family home and main residence since purchase.

You do not run a business from the property.

As you are finding it harder to maintain and manage the property, you are in the process of subdividing the property into four blocks.

You will continue to live in the house on one block. You will sell two of the sub-divided blocks now, and the remaining block will be sold later.

You have received a private ruling advising that you will not be liable for capital gains tax (CGT) on the disposal of your sub-divided blocks.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 23-5

Section 9-5

Section 7-1

Division 38

Division 40

Section 195-1

Reasons for decision

Summary

GST is not payable on your sales of subdivided land. As you are not required to be registered for GST you do not make a taxable supply, and therefore GST is not payable.

Detailed reasoning

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you make a taxable supply if you make a 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.

As you are making a supply for consideration that is connected with Australia (as the land is in Australia) it is necessary to determine whether the other elements of section 9-5 of the GST Act are met. That is, whether the supply is made in the course or furtherance of an enterprise that you carry on and whether you are registered or required to be registered.

You are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold (section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

You have advised that you do not run a business from the property and the property is purely your family home. Therefore you do not make the supply of the land as part of any enterprise.

Where you hold and then sell real property it is necessary to determine whether these activities form an enterprise in their own right. Where the sale of real property is made in the course or furtherance of an enterprise that you carry on and you are registered or required to be registered you will make a taxable supply (to the extent that the supply is not GST-free or input taxed).

Miscellaneous Taxation Ruling MT 2006/1 considers the meaning of an entity carrying on an enterprise. While this is for the purposes of entitlement to an ABN, it is relevant to the issue of what constitutes an enterprise generally. 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.

Ordinarily, an enterprise means something engaged in on a regular or continuous basis. We consider that your subdivision activity is a one-off activity, that you have held the land for many years, and that you have not previously developed land prior to this subdivision and do not have any intention to do so again in the future. Therefore we are satisfied that you are not in the business of land development.

However, an enterprise also includes an activity or series of activities carried on 'in the form of an adventure or concern in the nature of trade'. An adventure or concern in the nature of trade may include isolated transactions that do not amount to a business but which have the characteristics of a business deal.

Relevantly, MT 2006/1 ruling considers when isolated transactions and sales of real property will constitute an enterprise (at paragraphs 262-302). To determine whether there is an enterprise MT 2006/1 considers issues such as whether there is a change in purpose for which the land is held, whether additional land has been acquired, whether there is a coherent plan for the subdivision of the land, whether there is a business organisation such as a manager, office and letterhead for the development, whether borrowed funds are used for the acquisition or subdivision, whether there is a level of development beyond that necessary to secure council approval and whether buildings have been erected on the land.

With these factors in mind, relevant facts in your case are that you have held the land for a significant period of time, and the land has been your family residence. You have not bought additional land, and the land was not originally bought with the intention of resale. From the information available work has not been undertaken on works or developments on the land beyond those which are necessary for council requirements, nor have you built any buildings or other structures on the land.

Taking into account all of these factors, we consider that your activities in relation to the land do not amount to carrying on an enterprise. Rather, you are realising a capital asset that you already held.

As you are not carrying on an enterprise you are not required (or entitled) to be registered for GST.

As your supply of real property is not made in the course or furtherance of an enterprise that you carry on and you are not registered or required to be registered your supply of real property is not a taxable supply.

As your supply is not a taxable supply under general principles, it is not necessary to determine wether it is GST-free or input taxed under Division 38 or Division 40 respectively.

GST is only payable on taxable supplies (and taxable importations) (section 7-1 GST Act). As you do not make a taxable supply GST is not payable on this supply.