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Edited version of your written advice

Authorisation Number: 1013055862242

Date of advice: 19 July 2016

Ruling

Subject: GST and land subdivision

Question

Will the sale of the subdivided lots be subject to GST?

Relevant facts and circumstances

You purchased a hectares property decades ago.

The property has only been used as your residence. It has never been used for business purposes or primary production purposes.

You are retired and are subdividing and selling some hectares in order to build a new home.

Some hectares will be deducted from the property and the property will be subdivided into numerous lots, including the house lot for sale.

In order to split the property a new access road must be built to allow a new access to the existing house. To make the project viable and give you enough funds to build your next home, you have decided to subdivide the remaining land into the house block of approximately x hectare together with numerous additional blocks each of approximately y hectare.

No construction will be done on any of the other blocks.

This will be done in one stage.

Once the lots are subdivided and sold, the remaining land is planned to be retained for the rest of your life as a wildlife refuge.

Only the minimum clearing and earth works will be done to meet council requirements.

No construction will be undertaken on the subdivided lots. The major works will be construction of the new road, landscaping, electricity supply and telephone supply.

Total costs including council fees will be approximately $xxx.

You plan to engage contractors to perform all works.

You plan to engage two to three contractors for the roadwork's, stormwater, clearing of road reserve and telecommunications piping and junction pits, as well as surveyors, engineers and related utilities.

You will not be Involved in the construction work.

You will not be involved in the marketing and selling. Marketing and selling will be done by local real estate agents.

You have never undertaken a subdivision in the past. Your business before retiring consisted of manufacturing.

Relevant legislative provisions

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

section 9-20

section 195-1

Reasons for decision

Carrying on an enterprise

Section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides the definition of enterprise for GST purposes. This definition 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.

The definition of 'business' in section 195-1 of the GST Act is the same as that in section 995-1 of the Income Tax Assessment Act 1997. The meaning of 'business' is considered in Taxation Ruling TR 97/11 which discusses the main indicators of carrying on a business. In order to be conducted 'in the form of a business' the activities would need to have the essential appearance or characteristics of a business.

To make the project viable and give you enough funds to build your next home, you have decided to subdivide the remaining land into a house block of approximately x hectare together with numerous additional blocks each of approximately y hectare. Therefore, in this case, it is likely that the subdivision will be profitable.

However, you have held the land for many years. You have not developed land prior to this subdivision. Therefore, based on the facts provided, after weighing all the relevant indicators, we are satisfied that your activities would not amount to a business of land development.

However, the term 'enterprise' also includes an activity or series of activities carried on 'in the form of an adventure or concern in the nature of trade'. An adventure or concern in the nature of trade may include isolated transactions that do not amount to a business, but which have the characteristics of a business deal.

The question of whether an entity is carrying on an enterprise often arises where there are 'one-off' property transactions. The decision to be made is whether the activities are an adventure or concern in the nature of trade as opposed to the mere realisation of a capital asset.

Miscellaneous Taxation Ruling MT 2006/1 sets out guidelines on the meaning of the word 'enterprise' for the purpose of entities' entitlement to an Australian business number (ABN). Goods and Services Tax Determination GSTD 2006/6 confirms that the principles in MT 2006/1 apply equally to the term 'enterprise' for GST purposes.

Paragraph 265 of MT2006/1 details a list of factors that provide assistance in determining whether activities are an adventure or concern in the nature of trade. If several of the factors are present it may be an indication that an adventure or concern in the nature of trade is being carried on.

In this case, you acquired the property decades ago. The property has only been used as your residence and has never been used for business purposes or primary production purposes.

You are retired and are subdividing and selling some hectares in order to build a new home.

Some hectares will be deducted from the property and the property will be subdivided into numerous lots, including the house lot for sale.

In order to split part of the property a new access road must be built to allow a new access to the existing house. To make the project viable and give you enough funds to build your next home, you have decided to subdivide the remaining land into the house block of approximately x hectare together with numerous additional blocks each.

No construction will be done on any of these other blocks.

The proceeds from the sales of the lots and the house will be used to fund the construction of your new house.

Your local council only permits the creation of Rural Residential allotment sizes under the present zoning of no greater than 2 hectares and no smaller than .4 hectare (average size of 1.0 hectare). The council does not allow the creation of larger allotment hectares with the existing house.

Therefore, you are doing the minimal activity required to achieve your objective of establishing the wildlife habitat and selling your home.

The activities carried out by you would not go beyond what is required by council's regulations. The fact that you have not been involved in any other land subdivision or property development activities in the past is also a relevant factor.

We acknowledge that the sale of the subdivided lots may be more profitable than the sale of the property as one large block. However, this fact alone is not detrimental to the conclusion that the subdivision and sale may not be an adventure or concern in the nature of trade. We refer to paragraph 244 of MT 2006/1 which states:

    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. Such transactions are of a revenue nature. However, the sale of the family home, car and other private assets are not, in the absence of other factors, adventures or concerns in the nature of trade. The fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature.

Having applied all the principles in MT 2006/1 to the present circumstances, we conclude that your subdivision and development of your land for sale, does not amount to an enterprise for GST purposes. The development of the property and the subsequent sale of the subdivided land as vacant lots are regarded as the mere realisation of a capital asset. Consequently, the sales of the subdivided lots will not be subject to GST.