Edited version of your written advice

Authorisation Number: 1012919582366

Date of advice: 9 December 2015

Ruling

Subject: GST and sale of subdivided property

Question 1

Are you liable for GST when you sell a single subdivided lot?

Question 2

Are you liable for GST if you sell both subdivided lots as vacant land?

Answer

No, you are liable for GST if you make a taxable supply. The requirements of a taxable supply include that:

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

• you are registered or required to be registered for GST.

In this case you do not carry on an enterprise in relation to the Property and you are neither registered nor required to be registered for GST.

Relevant facts and circumstances

You are not registered for GST.

You own property located at a specified address (the Property).

You purchased the Property in the 1980s.

The Property has been used as your principal place of residence since that date.

Subdivision of the Property was approved a number of years ago. Your intention is to subdivide the Property into a number of lots (each being approximately Xm²).

Your existing residence will straddle the subdivided lots.

You intend to demolish your existing residence and construct a new residence on one of the subdivided lots for use as your principal place of residence.

You intend to sell the other subdivided lot in order to finance the construction of your residence.

As an alternative, you will demolish the existing dwelling and sell both lots as vacant land.

You do not intend to develop or build on the lot you intend to sell.

You do not carry on an enterprise.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 9-40

Section 9-5

Section 9-20

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)

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; and

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

• 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 carry on.

Enterprise

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. However, an 'enterprise' does not include an activity or activities done as a private pursuit.

Therefore the construction of your private residence does not fall within the definition an enterprise for GST purposes and therefore any subsequent supply of the premises will not be a taxable supply.

However we need to consider whether the subdivision and sale of the remaining lots constitute an enterprise.

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.

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 being in Z area containing the principal place of residence of you and your spouse. 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 in order to effect the subdivision. The Property is not considered a business asset and has been your principal place of residence since purchased in the 1980s. You have not borrowed any funds to date to finance the subdivision process.

There is not a coherent plan for the subdivision of the land and services required for the subdivision were completed a number of years ago. As such no further development is required to effect the subdivision.

On balance, given the above, we do not consider that your following activities constitute 'carrying on an enterprise' for the purposes of GST:

1. Subdivision of the Property, demolition of the existing residence, construction of new residential premises to be used as your principal place of residence on one lot and the sale of the remaining vacant lot.

2. Subdivision of the Property, demolition of the existing residence and sale of the remaining vacant lots.

GST registration

A requirement of registering for GST is that you carry on an enterprise. As discussed above, we do not consider that you are carrying on an enterprise. Consequently you are not able to register for GST.

Conclusion

The sale of the vacant subdivided lot/s will not satisfy the definition of a taxable supply pursuant to section 9-5.

Consequently GST will not be applicable to the sale of the vacant lot/s.