Edited version of your written advice

Authorisation Number: 1012788891523

Ruling

Subject: GST and Property

Question 1

Is the sale of your property a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

The requirements for making a taxable supply include that the supply is made in the course or furtherance of an enterprise that you carry on and that you are registered or required to be registered for GST.

We consider that you are not carrying on an 'enterprise' as defined in section 9-20 of the GST Act in regard to your activities relating to the rezoning and sale of your property and you are not required to be registered for GST pursuant section 23-5 of the GST Act.

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.

You inherited property (the Property) in 20XX. The Property had previously been owned since 19XX.

The Property is over 9 hectares and has been rezoned from rural to urban and you, together with other adjacent property owners, propose to sell your separate lots to a prospective buyer. The Property has not been subdivided by you.

The Property was previously used by the late owner as part of a farming enterprise which has now ceased. You were not involved in this farming enterprise.

The late owner together with other adjacent land owners decided to notionally join their respective properties and apply for a change in zoning from rural to urban.

Each of the properties would remain under separate titles and would not be merged prior to sale.

Your intention was to rezone the Property and not to develop the latter yourself.

There have been no physical changes made to the land, nor has any infrastructure been put in place to secure the zoning change. You have confirmed that no such changes will be made prior to sale of the land.

There is no formal business agreement in relation to the rezoning project carried on by you and the other land owners however representatives acted for you and the other landowners on an informal basis. They liaised with a number of experts to facilitate the rezoning.

You have stated that the duties of all parties in relation to the properties of the Owners, was solely for the rezoning of the area from rural to urban.

Costs have been incurred and have been apportioned between the owners based on the size of each lot as a percentage of the total land area held by all the owners. However, you have not incurred any costs

Your costs to date have been borne by the other landowners.

Prospective buyers will be invited to make an offer to purchase the land with each owner having to agree to the total offer price. If an offer is accepted, separate contracts for the sale of the land will be established for you and each of the other adjacent land owners.

You consider the costs associated with rezoning and positioning the property for sale are capital expenditures and the sale of the property realisation of a capital asset.

You are not registered for goods and services tax (GST).

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 Subsection 9-5(a)

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

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

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

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

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

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

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

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

Reasons for decision

In this ruling, please note:

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

• all terms marked by an *asterisk are defined terms in the GST Act

• all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website ato.gov.au

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; 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 for GST, 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, when you sell the land in question, you will make a supply of land in Australia for consideration satisfying paragraphs 9-5(a) and (c). 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 will be made in the course or furtherance of an enterprise that you are carrying on and if so, if you are required to be registered for GST.

Where it is found that the sale of your Property is not in the course of an enterprise, you will not be required to register for GST and the sale of the Property will not be a taxable supply.

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;

Therefore, we need to consider whether the activity of rezoning your property from rural to urban for the purposes of sale amounts to an enterprise.

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. Goods and Services Tax Determination 2006/6 provides that the discussion in MT 2006/1 equally applies to the term 'enterprise' as used in the GST Act and can be relied upon for GST purposes.

Paragraph 178 of MT 2006/1 lists a number of indicators considered when attempting to determine whether an activity or series of activities amount to a business:

• a significant commercial activity;

• a purpose and intention of the taxpayer to engage in commercial activity;

• an intention to make a profit from the activity;

• the activity is or will be profitable;

• the recurrent or regular nature of the activity;

• the activity is carried on in a similar manner to that of other businesses in the same or similar trade;

• activity is systematic, organised and carried on in a businesslike manner and records are kept;

• the activities are of a reasonable size and scale;

• a business plan exists;

• commercial sales of product; and

• the entity has relevant knowledge or skill.

Furthermore, 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 on a regular 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.

Paragraph 244 of MT 2006/1 explains that an adventure or concern in the nature of trade includes a commercial activity that does not amount to a business but which has the characteristics of a business deal. It refers to 'the badges of trade' and outlines a number of factors that may be taken into account when determining whether assets have the characteristics of 'trade' and held for income producing purposes, or held as an investment asset or for personal enjoyment.

Paragraphs 258 and 259 of MT 2006/1 provide guidance on the distinction between trading/revenue assets and investment/capital assets providing the following:

• Assets can be categorised as trading/revenue assets or capital/ investment assets. Assets purchased with the intention of holding them for a reasonable period of time, to be held as income producing assets or to be held for the pleasure or enjoyment of the person, are more likely not to be purchased for trading purposes.

• Examples of capital/investment assets are rental properties, business plant and machinery, the family home, family cars and other private assets. The mere disposal of capital/investment assets does not amount to trade.

Assets can change their character from a capital/investment asset to a trading/revenue asset, or vice versa, but cannot have a dual character at the same time.

While an activity such as the selling of an asset may not of itself amount to an enterprise, account should be taken of the other activities leading up to the sale to determine if an enterprise is carried on.

Paragraph 262 of MT 2006/1 acknowledges that the question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions. Paragraph 263 continues stating that the issue to be decided is whether the activities being conducted 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.

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.

…

In your case, we consider that the activities in rezoning your land from rural to urban, in consultation with other neighbouring property owners in the area, is considered a 'one-off' or isolated real property transaction

The Property was used by the late owner for a small scale farming enterprise. You were not involved in this enterprise which ceased on their death. You subsequently inherited the land and title was transferred to you. You have embarked on a rezoning process with neighbouring property owners to have the property rezoned from rural to urban with the intention of disposing of the property at some future time.

The following factors are relevant in your case:

• You do not have a business plan for this activity. Your only objective is to have the Property rezoned from rural to urban. As such, there will not be a change to the purpose for which the land is held whilst conducting this activity.

• Additional land has not been acquired by you during the zoning process. Although the rezoning application relates to a larger area of land than that held by you and the fact that a prospective purchaser will make a single offer for the combined properties of the Owners undertaking the rezoning process, you will not acquire any additional land and title in the other properties will remain with the individual owners of the adjacent properties.

• You have not undertaken a project of this type before.

• Buildings have not been erected on the site.

• You do not intend to borrow any funds for this process nor have you to date borne any costs towards to the rezoning approval.

Based on the above indicators, we consider that your activities associated with the application for rezoning and subsequent sale of your property do not constitute 'carrying on an enterprise' for the purposes of the GST Act. Therefore, you do not satisfy paragraph 9-5(b).

Registration

Section 23-5 of the GST Act states:

You are required to be registered under this Act if:

(a) you are *carrying on an *enterprise; and

(b) your *GST turnover meets the *registration turnover threshold.

As you are not considered to be carrying on an enterprise you are not required to be registered for GST.

Conclusion

As we have concluded that your activities do not amount to an enterprise and you are not required to be registered for GST, all the requirements of section 9-5 are not satisfied. Therefore, you are not making a taxable supply when you sell your land.

As such, there will be no GST payable on the sale of the Property.