Edited version of private advice

Authorisation Number: 1012637641146

Ruling

Subject: GST and staged sale of subdivided land

Question

Would the staged sale of a piece of land, which has the taxpayers' principal place of residence on it, be subject to goods and services tax (GST)?

Answer

No.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The taxpayers are looking to dispose of a parcel of land (the property) to a developer (the purchaser).The purchaser is intending to use the property to construct new homes for resale.

The taxpayers have used the property as their principal place of residence for the entire period of ownership and consequently never conducted any business activities on the property. The property was purchased prior to 1985.

The property is currently held on one title. The purchaser is not willing to pay the large sum required for the sale of the property in one transaction. In order to progress the sale, the property will be subdivided into equal lots to allow the purchaser to buy the land one lot at a time. Thus the sale of the property will be staged over a number of transactions, whereby the taxpayers will surrender a portion of the property to the purchaser each time.

Once the transactions have been completed, there will be no further interaction between the taxpayers and the purchaser. The taxpayers have no involvement with the development and construction and subsequent sale of new homes on the property.

The costs in relation to the actual application for the subdivision of the property will be borne by the taxpayers. However, all infrastructure and capital improvements on the property will be undertaken by the purchaser.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 section 23-5

Reasons for decision

GST is payable on any taxable supply you make. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides:

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.

(*denotes a term defined in section 195-1 of the GST Act)

An entity will be making a taxable supply where all the elements of section 9-5 of the GST Act are satisfied.

Based on the facts of your case, the proposed sale of the property for consideration will satisfy the requirements of paragraphs 9-5 (a) and (c) of the GST Act. Therefore, we must determine if the sale of the property will satisfy paragraphs 9-5(b) and (d) of the GST Act. That is whether you will make the supply in the course or furtherance of an enterprise and whether you are required to be registered.

The question of whether an entity is carrying on an enterprise is examined in 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).

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 or continuous 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.

In order to determine whether you will make a taxable supply, we must first ascertain if the sale will occur in the course of carrying on an enterprise.

Section 9-20 of the GST Act provides that an enterprise is an activity, or a series of activity, done "in the form of a business" or "in the form of an adventure or concern in the nature of trade".

Paragraphs 170 to 179 of MT 2006/1 consider the phrase "in the form of a business" and lists indicators of what may constitute "carrying on a business". On applying these principals to your case, we are of the view that your proposed activities in relation to the subdivision and staged sale (three transactions over four years) of the property do not constitute activities in the form of a business.

It is then necessary to consider whether the activities of subdivision and sale are an adventure or concern in the nature of trade (profit-making undertaking or scheme) or whether they are 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 undertaking or scheme. 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 applying the above factors to your case, we find that apart from the first and possibly the fourth dot points, none of the other factors listed above are present.

Having given consideration to the above factors, it is our view that the activities carried out in regard to the proposed subdivision and sale of the property is a sale of a capital asset and not the carrying on of an enterprise. Therefore the requirement of paragraph 9-5(b) of the GST Act is not satisfied.

Furthermore, section 23-5 of the GST Act provides that you are required to be registered if:

• You are carrying on an enterprise, and

• Your GST turnover meets the registration turnover threshold.

You are required to be registered where both the above requirements are met. In your case you do not satisfy the first requirement. It is therefore not necessary to consider the second requirement. Accordingly, you are not required to be registered.

As you do not satisfy all of the requirements of section 9-5 of the GST Act, you will not be making a taxable supply when you sell the property. Therefore, GST is not payable on the proposed sale of the property.