Edited version of your written advice

Authorisation Number: 1012888463036

Date of advice: 7 October 2015

Ruling

Subject: GST and sale of property

Question 1

Is your sale of properties 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 under section 9-5 of the GST Act 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 and you are neither registered nor required to be registered for GST in regard to your activities relating to the sale of your properties.

Therefore, the sale of your properties will not be taxable supplies.

Relevant facts and circumstances

You are not registered for GST.

You own acres of farm-land over a number of titles ('the land').

The land is comprised of a number of distinct parcels you acquired over the last xx years.

Properties 1 & 2

You acquired a fractional interest in a land parcel as tenants in common and acquired the second fractional interest xx years later to become the owner came as a consequence of actions by the previous owner.

You have had the sole right to use the whole of this land in connection with your primary production business since the acquisition of your interest in the land. Prior to acquiring your first fractional interest you had a verbal agreement with the other co-owner to the effect that if you acquired the first fractional interest you would be entitled to use all of the land in the furtherance of your farming activity subject to you paying all outgoings in relation to the land. You also reached an understanding that you would purchase the additional interest at a later stage as timing and funds permitted.

You did solely use the whole of Lot A in connection with your primary production business and met all land holding outgoings including council rates and water charges. You also met the full costs of fencing improvements on the land.

Property 3

This property consists of an amalgamation of land acquired over a two year period.

You purchased each of these parcels of land with the intention of using them in connection with a primary production business you conduct as a sole-trader.

Your primary production business consists of cattle breeding and beef production.

You operate a primary production business on the land and have a number of cattle. At all times that you have owned the land, you used it solely in relation to your primary production business.

When acquired, improvements to the land were minimal. You re-dug and re-sealed dams on the land, totally re-fenced the land and built cattle yards. You have also conducted a weed eradication program to make the land suitable for your primary production business.

At the time you acquired each parcel of land it was zoned by the council for farming use.

Several years ago a portion of the land was rezoned. The balance of the land remains zoned for farm usage.

You had no involvement in the above-mentioned rezoning.

You are now considering selling the land. To subdivide and develop the land into separate residential lots for separate sale to the public, you engaged a professional land development company. The developer will under terms of an agreement:

1. Attend to all matters required to effect the development and sale of the land. This will include matters such as:

• Applying for planning permits;

• Consultation with authorities;

• Carrying out construction works;

• Engaging consultants, contracts, builders etc. as required;

• Marketing lots for sale, and appointing sales agents;

• Determining minimum sale price for lots; and

• Collecting sales proceeds and disbursing them to you.

2. You remain owner of the land throughout the development. No title in the land will pass to the developer or any other entity to effect the development. You will individually enter into contracts of sales with purchasers of subdivided land lots.

3. The developer will be responsible for initially paying all development costs. It will have the right to be reimbursed these amounts from sale proceeds only as they are received on behalf of you.

4. In consideration for the development services provided by the developer, they will be entitled to a monthly management fee and a development fee at set percentages.

You have not personally borrowed any funds to pay the management fee, the developer has borrowed money to pay for the development costs and you consented to a mortgage over the land to provide security for the finance. The management fee is paid to the Developer as a deduction from these borrowed funds and will be reconciled at the projects end.

No monies pass directly from you to the developer, nor do you account for this on your business activity statement. Your accountant receives a statement regarding the financing for assurance purposes but ultimately this will be reconciled at projects end.

The developer has proposed that the land will be developed into a mix of residential lots and larger lots. The development is projected to take several years to complete. The planned subdivision will not involve the land being developed beyond minimum council approval requirements. Further, no buildings have been and will not be erected on any of the land.

The developers have now begun the process of gearing up for the development to commence. Their aim is to begin construction over the upcoming summer and they have commissioned selling agents to begin a marketing program, with an aim of obtaining pre-sales.

The first land sales may commence in the next couple of years, depending on the progress of the developer.

You de-registered for GST when your primary production turnover fell under the mandatory GST registration threshold. You will continue to run your farm business on the land until such time as the development activity means you need to vacate the land. Your turnover from these farming activities is not expected to meet the GST registration threshold in the future.

You have not borrowed money to finance the subdivision. Nor have you any prior direct or indirect experience in land development activity.

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)