Edited version of your written advice

Authorisation Number: 1051322272027

Date of advice: 20 December 2017

Ruling

Subject: GST and subdivisions

Question

Will the sale of subdivided land (the Property) be subject to GST as a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999?

Answer

No.

Relevant facts and circumstances

You are not registered for GST. You were previously registered for GST.

The Deceased died in MMYYYY.

The executors of the Deceased’s estate (the Estate) are the following individuals (the Trustees).

● Trustee A

● Trustee B

● Trustee C

The Deceased was the registered proprietor of the Property.

The Property was acquired by the Deceased DDMMYYYY.

The Deceased operated a primary production business on the Property, the grazing of cattle, which ceased on the Deceased’s date of death. The Deceased was registered for GST in respect of their primary production business which was cancelled (with effect from DDMMYYYY) promptly following the Deceased’s death, as the primary production business ceased at the date of death.

The Property is partly zoned residential (approximately Xha) and partly zoned agricultural (approximately Xha). There is an existing residence on the agricultural zoned part of the Property which was the Deceased’s residence at the date of death.

Upon the Deceased’s death, ownership of the Property passed to you.

Since the Deceased’s death you have leased out the Property to a farmer (the Lease) who continues to run a primary production business on the Property (as well as other properties unrelated to the Property). The Lease is informal by way of electronic correspondence communications and runs until DDMMYYYY. Your GST turnover is below the GST registration turnover threshold.

Trustee A has three children, being (the Children).

The Deceased left a Will dated DDMMYYYY together with a codicil dated DDMMYYYY (collectively, the Will).

The Will provides that the Property is to be sold and the net proceeds divided into four equal parts to be distributed to each of the Children and a Trust (the Grandchildren Trust) established for the benefit of the Children.

You will undertake a two lot subdivision of the Property to split the land zoned residential (Residential Land) and the land agricultural (Agricultural Land) into separate titles (the Proposed Subdivision).

Once subdivided, you propose to:

● sell the Residential Land to a third party purchaser and distribute the net proceeds from the sale to the Children and the Grandchildren Trust pursuant to the terms of the Will, and

● appropriate or sell the Agricultural Land to the Children, who currently wish to retain the Agricultural Land.

No new fences, roads, drainage or sewage will be constructed on the Property, and no demolition work will be undertaken, prior to the proposed sale date unless this work is required to be undertaken to register the Proposed Subdivision, in which case any works done on the Property will be the bare minimum required to register the Proposed Subdivision.

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 23-5

A New Tax System (Goods and Services Tax) Act 1999 Division 188

Reasons for decision

In this reasoning, please note:

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

● all reference materials referred to are available on the Australian Taxation Office (ATO) website ato.gov.au

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

Section 9-40 requires you to pay GST on any taxable supply you make.

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

a) you make the supply for consideration

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

c) the supply is connected with the indirect tax zone (Australia), and

d) 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.

You will make a supply of two subdivided lots of land consisting of:

● the Residential Land, vacant land

● the Agricultural Land, which contains a residential premises.

You will satisfy the requirements of paragraphs 9-5(a), 9-5(b) and 9-5(c) as you will make a supply of the subdivided lots of land in Australia for consideration in the course of your leasing enterprise. Of relevance is whether you are required to be registered for GST.

Section 23-5 provides that you are required to be registered for GST if:

a) you are carrying on an enterprise, and

b) your GST turnover meets the registration turnover threshold.

The registration turnover threshold is currently $75,000.

Section 188-10 provides that you have a GST turnover that meets a particular turnover threshold if:

a) your current GST turnover is at or above the turnover threshold and the Commissioner is not satisfied that your projected GST turnover is below the turnover threshold, or

b) your projected GST turnover is at or above the turnover threshold.

Of relevance here is your projected GST turnover. Section 188-20 provides that your projected GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made or are likely to make during that month and the next 11 months other than input taxed supplies.

The leasing income is below the turnover threshold.

However it is necessary to determine if the proceeds from the sale of the subdivided lots of land will be included in the calculation of your GST turnover.

In working out your projected GST turnover, paragraph 188-25(a) requires that you disregard any supply made or are likely to be made, by you by way of transfer of ownership of a capital asset of yours.

Goods and Services Tax Ruling GSTR 2001/7 Goods and Services Tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover discusses the meaning of a ‘capital asset’ at paragraphs 31 to 36.

Capital assets are often referred to as structural assets used by an entity to produce an income. Capital assets are to be distinguished from revenue assets. If the means by which you derive income is through the disposal of assets, those assets will be revenue or trading assets rather than capital assets. The activities undertaken to effect subdivision into two lots, in our view, are not a series of activities undertaken in the form of an adventure or concern in the nature of trade.

In this case the Property was a capital asset from which you derived leasing income. Therefore paragraph 188-25(a) acts to exclude the sale price of the subdivided lots of land from the calculation of your projected GST turnover.

As your turnover will not meet the GST registration turnover threshold you are not required to be registered for GST.

Therefore, you will not satisfy all the requirements of taxable supply under section 9-5 when you sell the subdivided lots of land.