Edited version of your private ruling

Authorisation Number: 1012583787217

Ruling

Subject: Goods and services tax (GST) and subdivided land

Question

Are you making a taxable supply when you sell subdivided vacant land?

Answer

No.

Relevant facts and circumstances

You are registered for GST and carry on an enterprise.

You and your ex-spouse purchased a property as joint tenants.

You lived at the property with your ex-spouse before you separated.

After the separation, your ex-spouse continued to live at the property, which continued to be held jointly.

Your ex-spouse did not pay any rent and it was agreed as part of the separation that she would continue to live there and maintain the property.

Your ex-spouse accumulated animals and this collection of animals had an adverse effect on the condition of the property.

A Health Notice was issued advising the house in its current condition is unfit for habitation and requiring works be undertaken

You would have to pay the cost of these works. You and your ex-spouse decided that carrying out these works would be uneconomical.

You both decided that you would purchase your ex-spouse's share of the property.

Your ex-spouse transferred her/his interest in the property to you.

You explored a number of options on how to deal with the property and decided to demolish the house on the property and to subdivide the block into lots.

You lodged an application with the relevant authority seeking approval of the subdivision.

You received approval for the subdivision.

You have employed a project manager to oversee and manage the subdivision.

You will contract with a real estate agent to sell the subdivided blocks.

You have not been involved in property developments previously.

You intend to only complete the works required by the relevant authority under the Development Approval.

No buildings will be erected on the land.

The land has not been brought into account as a business asset.

You will fund the subdivision from savings.

The property has no connection with your management consultant business.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Subsection 9-20(1).

Reasons for decision

In this ruling, please note:

• All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless stated otherwise.

• All terms marked by an asterisk are a defined term in the GST Act unless stated otherwise.

You must pay the GST payable on any taxable supply that you make.

Section 9-5 states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with Australia; and

(d) 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.

In your case, you will make a supply of land in Australia for consideration and you are registered for GST satisfying subsections 9-5(a), (c) and (d). Further, the GST-free and input tax provisions do not apply in your circumstances.

However, it is necessary to determine if the supply of the land is made in the course of an enterprise you carry on.

Enterprise

Subsection 9-20(1) states:

(1) An enterprise is an activity, or series of activities, done:

(a) in the form of a *business; or

(b) in the form of an adventure or concern in the nature of trade; or

…

Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) considers the meaning of carrying on an enterprise.

Paragraphs 262 and 263 of MT 2006/1 state:

Isolated transactions and sales of real property

262. The question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions.

263. The issue to be decided is whether the activities are an enterprise in that they are of a revenue nature as they are considered to be activities of carrying on a business or an adventure or concern in the nature of trade (profit making undertaking or scheme) as opposed to the mere realisation of a capital asset. ...

Your proposed subdivision and sale of the property will be a 'one-off' or isolated real property transaction.

Paragraphs 264 to 269 of MT 2006/1 outline factors that indicate whether the activities undertaken are an 'adventure or concern in the nature of trade' and state:

264. The cases of Statham & Anor v. Federal Commissioner of Taxation… (Statham) and Casimaty v. FC of T… (Casimaty) provide some guidance on when activities to subdivide land amount to a business or a profit-making undertaking or scheme. In these cases, farm land was subdivided and sold. Minimal development work was undertaken to meet council requirements and to improve the presentation of certain allotments. On the particular facts of these cases the courts held that the sales were a mere realisation of a capital asset.

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… 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.

266. 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.

…

269. The Commissioner recognises that in some cases practical difficulties may arise in deciding whether the activities involved in a particular subdivision amount to an enterprise. The question is necessarily one of fact and degree. As outlined above, it requires a careful weighing of the various factors and exercising judgment in the light of decided case law and commercial experience…

In your case, the purpose for which the land is held has changed from a single residential property for private use to subdivided lots of vacant land intended to be sold. You have not been involved in property developments previously and have employed a project manager to oversee and manage the subdivision. Only those works required by the relevant authority under the Development Approval will be completed and the subdivision will be funded from your savings. A real estate agent will be contracted to sell the subdivided blocks.

We consider that these factors as a whole indicate that the subdivision does not amount to an enterprise and is a mere realisation of a capital asset.

Therefore, you will not satisfy paragraph 9-5(b) if you proceed with the sale of the land. As all the requirements of section 9-5 will not be satisfied if you proceed with the sale of the land as outlined above, you will not be making a taxable supply.