Edited version of your written advice

Authorisation Number: 1051352129719

Date of advice: 3 April 2018

Ruling

Subject: Goods and services tax and the sale of subdivided land.

Question 1

Is your sale of subdivided blocks of land the mere realisation of a capital asset for GST purposes?

Answer

Yes.

Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) provides the Commissioner’ view on the meaning of carrying on an enterprise.

Paragraphs 258 to 261 of MT 2006/1 discusses trade vs investment assets and provides that assets purchased with the intention of holding them for a reasonable period of time, to be held as income producing assets or to be held for the pleasure or enjoyment of the person, are more likely not to be purchased for trading purposes.

Paragraphs 262 to 302 of MT 2006/1 consider when subdivision of land constitutes the mere realisation of a capital asset and when it constitutes a property development enterprise.

In your case, given that minimal development work was undertaken to meet council requirements and many of the indicators of trade as identified in paragraph 265 of MT 2006/1 are not present, your activities in relation to the development of the land does not constitute conducting an enterprise and therefore the sale of the subdivide blocks will be the mere realisation of a capital asset for GST purposes.

Question 2

On re-registering for GST, are you entitled to claim input tax credits on costs associated with the subdivision?

Answer

No.

Section 11-1 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you are entitled to input tax credits for your creditable acquisitions. Section 11-5 of the GST Act provides that you make a creditable acquisition when you acquire anything solely or partly for a creditable purpose. You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise (Section 11-15 of the GST Act).

In your case, given that you are not conducting an enterprise in relation to the development of the land, it being the mere realisation of a capital asset, your costs associated with the subdivision are not creditable acquisitions and therefore no input tax credits are available in relation to these acquisitions.

Question 3

Are you required to charge GST when selling the subdivided blocks on the basis that the sales constitute the sale of new residential premises?

Answer

No.

GST is payable on taxable supplies. Section 9-5 of the GST Act provides that you make a taxable supply when the supply is made for consideration, in the course of furtherance of an enterprise that you carry on, is connected with an indirect tax zone and you are registered or required to be registered.

As your activities in relation to the subdivision and sale of the subdivided blocks are considered to be the mere realisation of a capital asset and not the conduct of an enterprise, you do not meet the requirements of section 9-5 of the GST Act and hence you are not making taxable supplies and therefore are not required to charge GST on the sale of the subdivided blocks.

Note:

The term 'residential premises' includes houses, units and flats (not an exhaustive list). It refers to residential premises that provide shelter and contain basic living facilities. It does not include vacant land. Therefore your sale of the subdivided blocks as vacant land will not constitute the sale of new residential premises.

This ruling applies for the following periods:

1 July 2017 to 30 June 2018

1 July 2018 to 30 June 2019

1 July 2019 to 30 June 2020

The scheme commences on:

1 July 2017

Relevant facts and circumstances

You are a family trust and conducted a business of stockfeed manufacturing.

You purchased the Property pre GST, along with another block that backed onto the Property. At the time you purchased the Property the land was still zoned rural residential.

The Property consists of a house and a shed on a large block. You used the Property as part of your business. You operated out of the Property up until 201X, when you closed down the business. The Property was vacant and unused from 201X until the scheme began.

In 201X you began negotiating to sell the Property and the adjoining block to a property developer.

Subsequently you sold the adjoining block to the property developer.

You offered to sell the Property to the property developer as well, but they were not interested as they could not secure enough neighbouring blocks to the Property.

During the sales negotiations you talked with the owners of the neighbouring property who were also keen to sell. You decided that the costs of the subdivision could be reduced if you and your neighbour carried out works at the same time as the property developer’s project.

You and your neighbour have signed up with the same project manager that the property developer is using for their project to manage your development, and are co-ordinating works with the property developer to minimise costs. The project manager will manage the project and oversee all works performed.

You are connecting water, power, sewerage and NBN, building fencing and making a contribution to council in lieu of providing open space. You are performing the minimum work required by council to get project approval.

You and your neighbour have submitted development plans to council but they have not yet been accepted. The plans call for the Property to be subdivided into four new blocks. Two of the three proposals submitted involve some of the blocks being sold being made up of land owned by both you and your neighbour.

You will not borrow to fund the development works, as you have money from the sale of the other block and other savings and investments.

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 11-1

A New Tax System (Goods and Services Tax) Act 1999 section 11-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-15