Edited version of your written advice

Authorisation Number: 1012925478671

Date of advice: 9 December 2015

Ruling

Subject: GST and the sale of real property

Are you liable for GST on the sale of subdivided land in Australia?

Answer

Yes

Relevant facts and circumstances

You, a Trust, registered for GST from 1 July 2000.

X and Y purchased a property located in Australia (the Property) in the 19XXs.

At the time of purchase there was a house on the Property. The house was demolished in the 19XX's.

The Property was farmed continually (via the partnership) until yyyy.

In yyyy, part of the land was sold. Proceeds were used to construct a commercial property - a factory unit, which was leased - on a section of the Property.

In mmyyyy, the Trust was created, with X and Y being the primary beneficiaries and also the directors of the trustee company.

In yyyy, the remaining land and the commercial property were transferred to the Trust, by way of gift. You continued the leasing enterprise of the factory unit until the current time.

On ddmmyyyy, X and Y resigned as directors of the trustee company and relinquished their entitlement to the Trust property. Their relatives were equally appointed as the new Appointors and as the Trust beneficiaries.

In yyyy/yyyy, you subdivided x parcels of land from the Property land and sold them.

The remaining Property was subdivided - also in yyyy/yyyy - into xx lots for sale. The Trust continued to hold the factory unit.

Input tax credits were claimed on the development costs. Development expenses were reported on revenue account for income tax purposes.

x of the xx lots were sold in the yyyy and yyyy financial years and reported as taxable supplies. Two of the lots remain unsold.

You have employed and co-ordinated relevant contractors, town planners, solicitors and the like, to undertake the works involved to meet minimum local council requirements for approval. These included utilities such as telecommunications, electricity and crossings.

Total costs for the second subdivision were $xxxx, with proceeds estimated to be $xxxxx.

You are registered for GST because the income from the factory unit exceeds $75,000 per annum.

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

A New Tax System (Goods and Services Tax) Act 1999 Section 40-65

Reasons for decision

In this reasoning, unless otherwise stated,

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

• all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

Pursuant to section 9-40, you must pay GST on any taxable supply that you make.

Under section 9-5, an entity makes a taxable supply if:

• it makes a supply for consideration

• the supply is in the course or furtherance of an enterprise that it carries on

• the supply is connected with the indirect taxation zone and

• the entity is 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.

Enterprise, as defined in paragraph 9-20(1)(a), includes an activity, or series of activities, done on a regular or continuous basis, in the form of a lease, license or other grant of an interest in property.

You carry on an enterprise of leasing property. Your supply of the property, located in Australia, will be for consideration and you are registered for GST. Therefore, if your supplies are made in the course or furtherance of an enterprise that you carry on, they will be taxable supplies.

As stated in ATO Interpretative Decision ATO ID 2003/701 Goods and Services Tax GST and sale of an asset that was purchased for, but not used in, an entity's business (ATO ID 2003/701), the phrase, 'in the course or furtherance of' is not defined in the GST Act. Accordingly, it is appropriate to examine the ordinary meaning of those words.

The Australian Concise Oxford Dictionary (1997) defines the phrase 'in the course of' as 'during'. The word 'furtherance' is defined to mean 'furthering or being furthered; the advancement of a scheme etc'.

The Explanatory Memorandum relating to the A New Tax System (Goods and Services Tax) Bill 1998 confirms this ordinary meaning at paragraph 3.10 which states:

''In the course or furtherance' is not defined, but is broad enough to cover any supplies made in connection with your enterprise. An act done for the purpose or object of furthering an enterprise, or achieving its goals, is a furtherance of an enterprise although it may not always be in the course of that enterprise.'

Prior to yyyy, the property was used by X and Y to carry out their enterprise of primary production. Upon cessation of primary production in yyyy, the property which included the factory unit was transferred to you.

You continued the leasing enterprise of the factory. You also began a subdivision activity on the property.

You are subdividing and selling the property. As explained in ATO ID 2003/701, the sale is connected with your enterprise. Therefore the sales of the subdivided lots are made in the course or furtherance of your enterprise.

Under section 40-65, a sale of real property is input taxed, but only to the extent that the property is residential premises to be used predominantly for residential accommodation (regardless of the term of occupation).

As explained in paragraph 47 of Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises, vacant land is not residential premises because it is not capable of being occupied as a residence or for residential accommodation as it does not provide shelter and basic living facilities.

Your supplies of the subdivided lots will satisfy the requirements for a taxable supply set out in section 9-5. Further, they will be neither GST-free nor input taxed. Therefore, they will be taxable supplies.