Edited version of your private ruling

Authorisation Number: 1012600472366

Ruling

Subject: GST and the resumption of land

Question

Is the resumption of your property, a taxable supply by you, pursuant to section 9-5 of the GST Act?

Answer

No

Relevant facts and circumstances

You are not registered for GST.

You acquired the property from your parent. The land was vacant land and zoned 1a General Rural. The relevant Council (the Council) had advised that it intended to rezone the land for residential use. You acquired the property for the purpose of investment and either property development or resale when the rezoning occurred.

The property comprises X lots and is located in Australia. The property is X acres in size and is on two adjacent titles.

In YYYY rezoning of the area in which your property was located commenced. This process was completed X years later. Part of that process was the rezoning of your property to SP2 Infrastructure- Drainage. As a result, you were no longer able to hold the land for your original purpose. You understood, from this process, that your land would be resumed at some time in the future however you were unsure when this would occur.

Therefore, you submitted an application for hardship to the council under section 23 of the Land Acquisition (Just terms compensation) ACT 1991. This section of the Act requires the authority of the State to acquire land that is designated for acquisition by that authority for a public purpose and the owner considers that he may suffer hardship if there is a delay in the acquisition of the land.

The application took some time to prepare and you lodged the letter on ddmmyyy. The council accepted your request and resumed the property. This was reported in the Government Gazette.

You did not claim the application expenses as income deductions.

You have been offered an amount of $XX.XX for the property.

Relevant legislative provisions

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

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

Reasons for decision

In this ruling, please note that unless otherwise stated:

• all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) .

• all terms marked with an *asterisk are a defined in section 195-1 in the GST Act.

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

Section 9-5 provides that you make a taxable supply if:

(a) you make the supply for consideration

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

(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 owned vacant land that was resumed by the Council and you will receive consideration for the supply. The property is located in Australia and, the GST-free and input tax provisions do not apply in your circumstances.

You have contended that because the land is being compulsorily acquired, there may not be a supply and therefore there would be no taxable supply. In the alternative, if there was a supply, it was not in the course of any enterprise conducted by yourself.

In this case, we will consider whether any potential supply was made and whether that supply was made in the course or furtherance of an enterprise that you carried on.

Supply

The ATO considers that the compulsory resumption of land from a taxpayer does not involve a "surrender" or other supply unless the taxpayer has taken some action to cause its interest to be transferred or surrendered to the relevant authority. See Goods and Services Tax Ruling: 2006/9 Goods and Services Tax: Supplies. (GSTR 2006/9) (Paragraphs 82 and 82A)

In Hornsby Shire Council v FC of T 2008 ATC ¶10-061, the AAT ruled that where, following a rezoning of land, the owner exercised its right to request a council to acquire the land, the subsequent transfer of the land to the council constituted a taxable supply by the owner. Similarly, the sale of land to a state government by an owner ahead of the statutory process of resumption was a taxable supply (Case 1/2011, 2011 ATC ¶1-028).

Therefore, we consider that the action which you took under section 23 of the Land Acquisition (Just terms compensation) Act 1991, so that your property would be resumed, resulted in a supply being made by you to the Council.

Enterprise

Subsection 9-20(1) provides that an enterprise includes:

An activity, or series of activities, done:

• in the form of a business; or

• 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 acquisition of the property for the purpose of resale or development and the subsequent request to the council to resume the land under Section 23 of the Land Acquisition (Just Terms Compensation) Act 1991 is considered to be a 'one-off' or isolated real property transaction as opposed to a business activity. However, we need to consider whether it is in the nature of trade or an adventure or concern.

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.

Your original purpose for the property was to hold the land as an investment asset. When the property was rezoned you were no longer able to continue with your original purpose and so requested the resumption of the property.

You did not:

• acquire any additional land to add to this property holding

• form any coherent plan for the subdivision of the Property

• form any business organisation in relation to the Property

• borrow any funds to acquire the land. You only incurred holding costs.

• claim any expenses in your tax return associated with the application of the resumption of the land

• erect any buildings on the property and

• undertake any other property development activities.

Furthermore, by the time of the resumption of the land, you had held the property for 30 years.

We consider that the factors set out above, including the actions that you took to have the land resumed, are indicative that your activities in relation to the property do not amount to an enterprise activity and are a mere realisation of a capital asset.

Conclusion

For there to be a taxable supply you must meet all the criteria of section 9-5. In your case, although the transfer of land is considered to be a supply, it is not considered to be a supply in the course or furtherance of any enterprise that you are carrying on.

Therefore your supply will not be taxable pursuant to section 9-5 of the GST Act.