Edited version of your written advice

Authorisation Number: 1012860121460

Date of advice: 18 August 2015

Ruling

Subject: GST and subdivision of property

Question

Is the sale of your interest in the specified property a taxable supply?

Answer

No

GST is payable on any taxable supplies that you make. The requirements of a taxable supply include that the supply be 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.

In this case, the sale is not considered to be in the course or furtherance of an enterprise that you carry on and you are neither registered nor required to be registered for GST.

Relevant facts and circumstances

You are not registered for GST.

Your spouse is not registered for GST

You and your spouse were registered for GST as a partnership. You cancelled your GST registration as you were no longer required to be registered for GST due to your turnover being below the registration turnover threshold.

You and your spouse purchased property at a specified location (the Property) with a number of other family members in 19XX.

You and your spouse's share being approximately is xx m².

The dwelling on the Property at the time of purchase is used as the residence of another owner (family member).

You constructed a house on the Property prior to 2000 and resided on the Property since that date.

You intend to subdivide the Property and sell enough lots to cover the costs of the subdivision. You intend to retain the remaining blocks to pass onto your children.

Upon the completion of the subdivision, in the case a lot is sold, the net proceeds in excess of costs will be distributed in accordance with each owner's interest. In the case lots remain unsold, the remaining lots will be allocated to each owner in accordance with their overall interest in the property.

You have entered into a Planning Management Agreement (Agreement) with an unrelated party engaging the entity to provide lobbying services and planning management services.

Under the Agreement, lobbying services includes:

• obtaining quotes from a town planner to obtain a local structure plan and subdivision approvals and lobby the approval from all the relevant government departments; and

• obtaining quotes from an engineer for the preparation of a strategy for the Water Corporation for provision of services to the land, in particular reticulated sewer and water mains required extension upgrades.

Under the Agreement, planning management services consists of arranging the application for and obtaining of an approved local structure plan from the relevant local council and conditional subdivision approval from the relevant planning commission. Such services are collectively referred to as the 'Works'.

The Agreement defines the term 'Works' as the whole or any part of the work to be carried out and services to be provided for obtaining the planning (Local Structure Plan and Subdivision) Approvals and required environmental and engineering Approvals of the Land in the manner contemplated by the Agreement including obtaining Approvals and quotations for all necessary services required for the obtaining of such Approvals.

To date, details of any physical works to be carried out on the Property are yet to be established however you will only complete works as required under the local structure plan and conditional subdivision approval pursuant to the terms of those approvals. You will not be constructing any premises on the subdivided lots.

Furthermore, no engineering details have been completed as yet and you have not yet entered into a project management/marketing agreement.

No additional land has been acquired in the subdivision process.

The Property has not been brought into account as a business asset of your business. The Property was purchased and used for private/personal use only.

You have not borrowed any funds to date to finance the subdivision process.

You and your spouse previously owned property where you resided for approximately XX years. Prior to that period you owned a block of land for approximately X years.

You have not previously been involved in, nor have any experience in property development.

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

A New Tax System (Goods and Services Tax) Act 1999 Section 9-40

Reasons for decision

Note: In this reasoning, unless otherwise stated,

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

• reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

Section 9-40 provides that you are liable for GST on any taxable supplies that you make.

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

• you make the supply for consideration

• the supply is made in the course or furtherance of an enterprise that you carry on

• the supply is connected with the indirect tax zone, and

• 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.

As you are not registered for GST, the issue in this case is whether you are required to be registered. In addressing this issue we will initially consider whether your activities are in the course or furtherance of an enterprise that you currently carry on or constitute another enterprise being carried on.

We do not consider the activities involved in the process of subdividing your property to be in the course of carrying on your existing enterprise. The Property has not been brought into account as a business asset. Furthermore, the Property was acquired and used for private or personal use only.

In regard to whether the activities conducted will constitute another enterprise being carried on, Miscellaneous Taxation Ruling MT 2006/1 (MT 2006/1) provides the Tax Office view on the meaning of 'enterprise' for the purposes of entitlement to an Australian Business Number (ABN). Goods and Services Tax Determination GSTD 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 on for GST purposes.

Section 9-20 provides that the term 'enterprise' includes, among other things, an activity or series of activities done in the form of a business or done in the form of an adventure or concern in the nature of trade. The phrase 'carry on' in the context of an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

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.

The cases of Statham & Anor v. Federal Commissioner of Taxation (Statham) and Casimaty v. FC of T (Casimaty) established a number of factors in determining whether activities are a business or an adventure or concern in the nature of trade with reference to real property transactions including:

• 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.

No single factor will be determinative of whether the activity or activities will constitute either a business or an adventure or concern in the nature of trade.

The following discussion is centred on applying the facts of this case to the above indicators of a business and factors in determining whether activities are a business or an adventure or concern in the nature of trade with reference to the indicators established in Statham and Casimaty in the context of real property transactions.

In this case the activity involves a single property containing the principal place of residence of you and your spouse and the principal residence of other family members (tenants in common). The Property has only been used for private purposes and is intended to be used for this purpose following the proposed subdivision and subsequent sale of any vacant blocks. As such, there will be no change to the purpose for which the land is held whilst conducting this activity.

Additional land has not been acquired by you during the rezoning process nor was the Property brought into account as an asset of your business. You have not borrowed any funds to date to finance the subdivision process.

You have also advised that whilst specifics of any physical works to be carried out on the Property are yet to be established, you will only complete works as required under the local structure plan and conditional subdivision approval pursuant to the terms of those approvals and will not be constructing premises on the subdivided lots.

You have not previously been involved in, nor have any experience in property development.

In this case you have engaged an unrelated entity to manage the approval process however have not entered into any agreement/s in regard to the management of any works to be carried out to fulfil requirements of an approved development application or the marketing of the subdivided lots. It would be envisaged that any such entity engaged for these purposes would establish a coherent plan in order to fulfil its duties.

On balance, given the above, we consider that your activities involving the subdivision of your interest in the Property and subsequent sale of the vacant subdivided lots do not constitute 'carrying on an enterprise' for the purposes of GST.

Therefore the sale of the vacant subdivided lots, together with the fact that you are neither registered nor required to be registered for GST, will not satisfy the definition of a taxable supply pursuant to section 9-5.