Edited version of your written advice

Authorisation Number: 1012774967574

Ruling

Subject: GST and sale of vacant blocks of land

Question

Will the supply of the vacant blocks of land, which are to be subdivided from the property located in Australia, be taxable supplies under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice

No, the supply of the vacant blocks of land, which are to be subdivided from the property located in Australia, will not be taxable supplies under section 9-5 of the GST Act because, based on the information received, the owners of the property will not be carrying on an enterprise under paragraph 9-5(b) of the GST Act when the subdivided blocks of land are sold.

Relevant fact

Mr and Mrs XX currently live on the property located in Australia (property) which they acquired several years ago. Mr and Mrs XX (together as 'you') are currently not registered for the goods and services tax (GST).

The property was purchased with the following intention:

a) to provide a rural environment for you and your children to live at;

b) to conduct hobby farming activities; and

c) to park your vehicles.

The property was zoned rural when it was acquired. You commenced building your family home on the land and, you and the children moved into the house after the construction. A swimming pool and a shed were built later.

The property is largely rural vacant land with associated out buildings used for private purposes. You have undertaken grazing activities on the land as a hobby and not as a business.

The property was later zoned from rural residential to residential.

With your failing health the property has become difficult to manage due to its size. You propose to realise the property by subdividing it in several lots for residential housing.

The development will be undertaken in stages primarily to allow you to retain the land which has your current house and remain living in their house for as long as possible.

You do not want to undertake any of the development works and will contract with a developer to undertake the development, pay for the developments costs for a development fee.

The total proceeds are expected to be above $75,000.

A development plan in line with the proposed plan noted above was approved by the local authority lately.

There are several stages in the development and you expect to commence the development soon. The last stage will occur if and when you decide to leave your home.

It is expected that each stage of the development (other than the first stage) will be funded from the proceeds of earlier completed stages.

You will not carry out any housing construction on the blocks of the land. The subdivided lots will be sold as vacant land.

You are not in the business of land development and you have never done anything like this in the past.

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 9-20

Reasons for decision

GST is payable on a taxable supply. You make a taxable supply under section 9-5 of the GST Act 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 for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

All of the above requirements must be satisfied for a supply to be a taxable supply under section 9-5 of the GST Act.

From the information received, you will satisfy paragraphs 9-5(a) and 9-5(c) of the GST Act when you sell the subdivided blocks of vacant land as you will make the supply for consideration and the supply will be connected with Australia as the subdivided blocks of vacant land are located in Australia.

There is no provision in the GST Act that makes a supply of vacant block of land in Australia GST-free or input taxed.

We will now consider whether the sale of the vacant blocks of land will be made in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b) of the GST Act) and whether you will be required to be registered for GST as you are currently not registered for GST (paragraph 9-5(d) of the GST Act).

Paragraph 9-5(b) of the GST Act

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

Paragraph 265 of MT 2006/1 outlines factors that indicate whether activities undertaken on a one-off are an 'adventure or concern in the nature of trade' and states:

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.

Applying the information received to the factors in paragraph 265 of MT2006/1

From the facts received:

• You use the property originally as your family home. After the subdivision is made, the purpose for which the land is held will remain unchanged as it will still be your principle place of residence but on a smaller scale.

• No additional land will be acquired.

• The land has not been brought into account as a business asset because you have not carried on a business of land development.

• You have a coherent plan for the subdivision in that you have lodged the development application and completed all the requirements to obtain the subdivision approval. You intend to have a passive role as you will appoint developers to perform the work that needs to be done for the subdivision.

• You will have the subdivision done in stages so that you can use the proceeds from each stage to fund the next stage of the subdivision.

• The land will be developed only to the bare minimum necessary to satisfy the conditions of the local authority. No buildings will be erected on the land as part of the subdivision.

From the above we consider that while some factors listed in paragraph 265 of MT 2006/1 are present, on balance the activities to be undertaken on the property are not an 'adventure or concern in the nature of trade'. The subdivision and sale are a way of disposing of some of the land on which your home is situated. The subdivision therefore does not amount to an enterprise but a mere realisation of a capital asset.

Accordingly, you will not be selling the vacant blocks of land in the course of an enterprise that you are carrying on under paragraph 9-5(b) of the GST Act.

Paragraph 9-5(d) of the GST Act

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

• you are carrying on an enterprise, and

• your GST turnover meets the registration turnover threshold (currently $75,000).

As determined above, the sale of the subdivided vacant blocks of land will not amount to an enterprise for GST purposes and therefore you will not be required to be registered for GST. Accordingly, section 23-5 of the GST Act will not apply.

As you are not registered, nor required to be registered for GST, the requirement in paragraph 9-5(d) of the GST Act will not be satisfied.

Summary

As all the requirements in section 9-5 of the GST Act will not be satisfied, your sale of the subdivided vacant blocks of land as outlined will not be a taxable supply and therefore will not be subject to GST