Edited version of private advice

Authorisation Number: 1051519116990

Date of advice: 17 May 2019

Ruling

Subject: Subdivision and sale of property

Question 1

Will the sales proceeds received by the Company be capital receipts under Part 3-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

Question 2

Will capital gains tax event A1 occur when each individual lot is sold under section 104-10 of the ITAA 1997?

Answer

No

Question 3

Will your supplies of the subdivided land lots at xx (the property or the land) be considered taxable supplies pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes

This ruling applies for the following period(s):

1 July 20xx to 30 June 20xx

The scheme commences on:

xx July 20xx

Relevant facts and circumstances

Background

The Company is a proprietary company that was incorporated on xx xx 19xx. The Company was established with 2 shareholders A the son, and B the father.

The Company was established with this shareholding as it was required to have two directors and two shareholders at that time under Corporations Law. At this time the father owned x% of the shares as bare trustee for A.

At that time this was the preferred ownership structure for capital assets prior to the introduction of the CGT discount.

The Company purchased land at xx on xx 19xx. The land is contained on certificate of Title volume xx Folio xx.

The land (zoned agricultural) was purchased for long term capital growth. At the time of the acquisition the company had no particular time frame for disposal or an exit strategy. The land has always been held on capital account.

The Company conducts no other activities or business, and holds no other properties. There is no trustee behind the corporate entity.

A subsequently changed the directors of the Company and acquired the remaining x% shares on xx xx 20xx.

The Company has held an Australian Business Number (ABN xx) from xx xx 20xx, but is not registered for GST.

The Director

A is a xx. A has a trading company which operates another business.

A also has 50% holding in a unit trust. The unit trust holds properties as rental properties in various locations.

A has not previously been involved in the subdivision and sale of land.

There is no intention by A to change the current registered owner of the land, or create new entities in the course of the development of the land.

The use of the land

The Company at no time has used the land for any agricultural business activity.

The Company had various private arrangements to keep the land free from noxious weeds. The Company did not receive any consideration for this.

From 20xx income year to date the land has been used for xx. The Company did not receive any consideration for this.

All the holding costs of the land have been paid for by A.

The land was rezoned for residential as part of a council rezoning gazetted in the xx on the xx xx 20xx.

The rezoning of the land

The amendment was prepared by the xx (known as the xx) at the request of this authority and the xx.

The amendment implements the development of the land in accordance with the xx and rezoning land within the Precinct area (including the Land) to xx. xx enables residential, industrial and commercial uses in areas identified in the future urban structure and in accordance with the vision of urban growth outlined in xx.

The land was not rezoned by xx as a result of any action by the Company or the Director.

The rezoning of the land will increase the council rates for the land.

The development of the land

As a result of the rezoning A had unsolicited approaches to both sell the land outright and to develop the land with a joint venture partner.

During a discussion between Mr C and A, Mr C became aware of the land held by the Company.

XX Pty Ltd (the Developer) is an unrelated entity owned and run by Mr C, who was previously A's xx.

The Developer approached the Company with a proposal to develop the land and the Company accepted entering into a formal Development Agreement dated xx xx 20xx (Agreement).

The Developer is to carry out works to bring the land to a standard required by the local council and relevant authorities. The Developer will then over an anticipated xx, sell the individual subdivided blocks of the land to the public.

The Company will remain the legal and beneficial owner of the Land throughout the course of the development, and will not be actively involved in the work that is required for the execution and completion of the Project Services.

The Development Agreement

The Company seeks to realise the maximum value for the Land in the most enterprising and economically beneficial way with minimal involvement (xx).

The Agreement between the Company and the Developer will be implemented x after the xx is published in xx (xx).

The Agreement defines Project (xx) as:

·         subdivision of the Land into approximately xx lots for the residential use ....acceptable to xx.........; and

• development and sale of the Land with or without improvements so as to achieve xx on the terms and conditions in the Agreement.

The Developer will prepare a Budget (xx) that sets out the estimated sales proceeds, Project Costs and estimated profit, updated from time to time as required.

The Developer will undertake the Project by carrying out the Project Services (xx) as:

Project Services means all the work that is required for the execution and completion of the Project, including:

• civil construction works ....;
• designing the works ...;
• apply for and obtaining all approvals...;
• use of contractors....quantity surveyors, engineers, architects, real estate agents and all other consultants necessary in the execution and completion of the Project;
• obtaining or procuring the finance required to carry out the Project;
• construction work of the Project including: .....
• ....Arranging for the registration of the Plan of Subdivision by Registrar of xx in xx;
• Arranging for, supervising and promoting the sale of the Lots including the appointment, procurement, liaison with and, if required, termination of, any real estate agent for the sale of the Lots;
• Keeping the accounts and all documents, invoices and records necessary for preparation and auditing of the accounts relating to the Project; and
• Management of the Project's financial administration including preparation and where requested by the xx, auditing of the accounts for the Project;
• Providing all expertise, personnel, facilities and other resources necessary to carry out the Project Services, execute and ensure Completion of the Project.

For carrying out the Project Services the Developer will receive a Development Fee. The Agreement defines the Development Fee (xx) payable to the Developer as:

·         The Developer shall be paid a development fee as calculated in accordance with xx.

·         The fee will be paid as $ xx per month (plus GST) as set out in xx of xx to be funded by xx. With balance on completion.

Schedule xx in clause xx of the Agreement provides:

Schedule "xx"

Calculation of Development Fee payable to the Developer:

The Development Fee shall be calculated in accordance with the following formula:

PC + x% of NP

Where,

NP = GR - (BLV+PC)

Where,

NP = Net Proceeds of the Land

GR = Gross Revenue

BLV = Base Land Value

PC = Project Costs

LO = Land Owner

DC = Development Consultant

Plus any GST payable in respect of those amounts.

The Base Land Value of the subject land is the agreed sum of $xx.

The Developer shall be entitled to draw the sum of $xx per month (plus GST) from the Project funding account during the course of the Project.

The development fee will be invoiced on completion. In practical terms this is at the end of the Project when all costs and sale proceeds are known. The Developer is entitled to invoice at $xx per calendar month (plus GST) to be credited to the total fee as per the Agreement. This commenced in xx 20xx.

The Developer will provide its own finance for the project and will use the land as security for any borrowings (xx).

The Developer will pay all of the Project Costs from the date of implementation of the Agreement (xx).

The developer is required to maintain appropriate public liability insurance in connection with the Land (xx).

Sales proceeds less the Development Fee are due to the Company upon the sale of each individual lot. The Development Fee will cover all of the Project Costs incurred by the Developer. The Development Fee will not be invoiced and paid until the end of the Project.

It is the intention of the parties under the agreement that nothing in the Agreement creates a joint venture, partnership, or the relationship of principal and agent, or employee and employer between the parties (xx).

Details of Proposed Subdivision

The Indicative Subdivision Plan

The pan of Subdivision xx dated xx xx 20xx shows that the current but not yet settled plans are to develop the entire property with provision for xx hectares of public open space to be acquired by xx.

The remaining x hectares will be developed into x lots consisting of x standard density lots (xxm2) and x medium density lots (xxm2).

There are three areas of land being approximately x square metres that is subject to further negotiation and discussion as a potential land swap. This land swap would be a variation of the boundary to the land.

The Company nor the Developer on the Company's behalf have as at xx xx 20xx applied for subdivision.

There are no further drafts of the subdivision at this time.

The xx cost sharing agreement

The Developer has entered into the xx cost sharing agreement (xx) executed on x xx 20xx.

The Developer is a xx to the xx dated xx xx 20xx.

Under the xx the Developer has an agreed portion of xx% of the cost sharing, which gives a contribution amount for initial design costs of $xx, ............ committed to an expenditure of $xx for the xx sharing facilities.

The xx Draft Pricing

As part of the project services the Developer will arrange for, supervise and promote the sale of Lots including the appointment, procurement, liaison with and, if required, termination of, any real estate agent for the sale of the Lots.

As such it is the Developer that will make all decisions in relation to the marketing and sale of the individual lots.

The current first draft of pricing prepared by xx shows a total of $xx in sale proceeds.

The draft xx shows that this is expected to be achieved through sales over xx from xx 20xx into April 20xx.

The xx Marketing Program

The proposed xx dated xx xx 20xx shows x areas of land being approximately xx that is subject to further ... discussion as a potential land swap.

Power of Attorney

There is the ability under the Agreement (xx) for the Developer to seek a power of attorney if it is required to carry out any duties required under the project. At this stage the Company ...provided a power of attorney to the Developer.

The powers given to the Developer are broad, and the Developer is authorised to and can sign all documents and instruments to give effect to the implementation of the Agreement. A power of attorney will be prepared in accordance with xx as and when required.

The Company as the land owner is required under xx to sign documents and instruments to give effect to the implementation of the Agreement. This includes the loan documents and may include the development applications lodged with Council.

The following documents provided to the Commissioner as part of the private ruling process form part of the facts of the ruling:

·         Ruling application dated xx xx 20xx

• Development Agreement dated x of xx 20xx
• Proposed Indicative Plan of .......
• cost estimates
• .......cost sharing
• ......from xx real estate to Developer dated xx xx 20xx
• .........

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 102-5

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 108-5

Income Tax Assessment Act 1997 Section 118-20

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

A New Tax System (Goods and Services Tax) Act 1999 Section 9-10

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 23-5

A New Tax System (Goods and Services Tax) Act 1999 Section 188-10

Reasons for decision

Question 1

Summary

The Company has ventured land into a commercial profit making transaction and as such the income from the development project is ordinary income of the Company, and assessable under 6-5 of the Income Tax Assessment Act 1997.

Detailed reasoning

Taxation treatment of property sales

A gain from the disposal of property will usually be treated in one of two ways, as assessable income on revenue account (under section 6-5 of the ITAA 1997), or as a disposal of a capital gains tax (CGT) asset on capital account.

A gain form the disposal of property will be stamped with the character of income where:

1.    it is made in the ordinary course of carrying on a business; that is, where "what... is done is not merely a realisation or change of investment, but an act done in what is truly the carrying on, or carrying out, of a business": California Copper Syndicate v Harris (1904) 5 TC 159 at pp.165-166; and London Australia Investment Company Limited v Commissioner of Taxation (1976-1977) 138 CLR 106;

2.    it is made outside of the ordinary course of a taxpayer's business from an isolated (or "extraordinary") transaction entered into with the intention or purpose of making a profit. (This is the so-called first limb or strand of the decision in Commissioner of Taxation v The Myer Emporium Ltd (1987) 163 CLR 199 at pp.209-210); or

3. it is made from an isolated or one-off business venture or profit-making scheme: Commissioner of Taxation v Whitfords Beach Pty Ltd (1982) 150 CLR 355.

In respect of isolated or one-off business ventures or profit making schemes, Taxation Ruling TR 92/3 Income tax: whether profits on isolated transactions are income (TR 92/3) at paragraphs 33 - 36 states:

33. The views expressed in Whitfords Beach and Myer that profits from isolated transactions can be assessable income must be looked at in the context of the facts involved in those cases. In Myer, the taxpayer was carrying on a large business at the time it entered into the transactions and, in Whitfords Beach, the taxpayer company embarked on a substantial business venture.

34. Nevertheless, there is a strong line of reasoning through the judgments in Whitfords Beach and Myer that suggests that profits made by a taxpayer who enters into an isolated transaction with a profit-making purpose can be assessable income. In Myer, at 163 CLR 213; 87 ATC 4369; 18 ATR 699-700, the Full High Court had this to say about the nature of profits from isolated transactions:

'It is one thing if the decision to sell an asset is taken after its acquisition, there having been no intention or purpose at the time of acquisition of acquiring for the purpose of profit-making by sale. Then, if the asset be not a revenue asset on other grounds, the profit made is capital because it proceeds from a mere realisation. But it is quite another thing if the decision to sell is taken by way of implementation of an intention or purpose, existing at the time of acquisition, of profit-making by sale, at least in the context of carrying on a business or carrying out a business operation or commercial transaction.'

35. A profit from an isolated transaction is therefore generally assessable income when both of the following elements are present:

(a) The intention or purpose of the taxpayer in entering into the transaction was to make a profit or gain.

(b) The transaction was entered into, and the profit was made, in the course of carrying on a business or in carrying out a business operation or commercial transaction.

36. The courts have often said that a profit on the mere realisation of an investment is not income, even if the taxpayer goes about the realisation in an enterprising way. The expression 'mere realisation' is used to contradistinguish a business operation or a commercial transaction carrying out a profit-making scheme (Myer at 163 CLR 213; 87 ATC 4368-4369; 18 ATR 699-700). If a transaction satisfies the elements set out in paragraph 35 it is generally not a mere realisation of an investment.

Mere Realisation vs disposal in the course of business or profit making undertaking

One of the key turning points based on the current facts that the Commissioner has been asked to consider is whether the ultimate sale is a 'mere realisation', or whether it is a disposal either in the course of business or as part of a profit-making undertaking or scheme.

Where the sale is a 'mere realisation' the sale is on capital account to which the capital gains tax (CGT) rules will generally apply. These proceeds are not ordinary income.

A sale that is more than a 'mere realisation' will be on revenue account and proceeds will generally be assessable as either income from the carrying on of a business or income from a profit making undertaking or scheme.

The doctrine of 'mere realisation' was developed in the Full High Court case of Scottish Australian Mining Co Ltd v. Federal Commissioner of Taxation (1950) 81 CLR 188 (Scottish Australian Mining), and has been relied upon by numerous cases since. The Full High Court in Scottish Australian Mining found that based on the facts of that case, the subdivision of the land was considered no more than a mere realisation of a capital asset, and its subdivision was merely an enterprising way to realise an asset to its best advantage. For many years it was felt that the doctrine of 'mere realisation' was applied so broadly that it was thought that only in exceptional circumstances would an isolated transaction fall within the ordinary concepts of income.

However this all changed in 1982 when the landmark Full High Court case of FC of T v. Whitfords Beach Pty Ltd (1982) 150 CLR 355; 82 ATC 4031 (Whitfords Beach) was decided. In this case, Justice Mason said:

37. However, apart altogether from this factor, the facts previously mentioned show that there was involved more than mere realization of an asset. Deane J. was right in pointing to the circumstance that the asset was divided and improved in the course of a business of dividing and improving the asset. In this respect I do not agree with the proposition which appears to be founded on remarks in some of the judgments that sale of land which has been subdivided is necessarily no more than the realization of an asset merely because it is an enterprising way of realizing the asset to the best advantage. That may be so in the case where an area of land is merely divided into several allotments. But it is not so in a case such as the present where the planned subdivision takes place on a massive scale, involving the laying out and construction of roads, the provision of parklands, services and other improvements. All this amounts to development and improvement of the land to such a marked degree that it is impossible to say that it is mere realization of an asset. We need to bear in mind that the subdivision of broad acres into marketable residential allotments involves much more in the way of planning, development and improvement than was formerly the case.

38. Like Wilson J., I have difficulty with the decision of Williams J. in Scottish Australian Mining Co. Ltd. v. Federal Commissioner of Taxation (1950) 81 CLR 188. The taxpayer there, after giving up its mining business in 1924, devoted itself to the subdivision of its land. This entailed the construction of roads, the building of a railway station, the granting of land to public institutions such as schools and churches and the setting aside of land for parks. I should have been inclined to the view that the taxpayer had ceased to carry out its mining business and that it had commenced to carry on the business of land development.

...

40. From what I have said it will be seen that it is my opinion that what the respondent did amounted to more than realization of an asset and constituted the carrying on of the business of land development. Accordingly, the gross income is assessable under s. 25(1).

Therefore the decision in Whitfords Beach has narrowed the scope of the 'mere realisation' doctrine developed by Scottish Australian Mining, which so many of the preceding cases relied upon.

The case highlights that while 'mere realisation' may still be possible where blocks are merely subdivided to several blocks with minimal activity, where the size and scale of the activity reaches such a level (such as constructing roads, the provision of parklands, services and other activities), this all amounts to a development and improvement of the land to such a marked degree that it is no longer possible to say it is a mere realisation of an asset.

The decision in Whitfords Beach also highlights that the requirements of modern day residential subdivision, which involve much more development and improvement of land than was formerly the case, make it far more difficult for contemporary residential subdivisions to satisfy the 'mere realisation' doctrine.

Application to the Company's circumstances

At the time of purchase of the property, was there a profit making purpose?

Where a profit making activity is a one off or isolated transaction and not part of the taxpayer's ordinary business activities, the activities may still be revenue in nature and assessable under section 6-5 of the ITAA 1997 where at the time of purchase there was a profit making purpose.

When considering the intentions of a taxpayer at the time of acquiring the land or a property development, paragraph 38 of TR 92/3 states:

38. The intention or purpose of the taxpayer (of making a profit or gain) referred to in Myer is not the subjective intention or purpose of the taxpayer. Rather, it is the taxpayer's intention or purpose discerned from an objective consideration of the facts and circumstances of the case. This is implicit from what the Court said, in the passage quoted in paragraph 30 above:

'..it may be said that if the circumstances are such as to give rise to the inference that the taxpayer's intention or purpose in entering into the transaction was to make a profit or gain, the profit or gain will be income..'.

It is accepted that the Company's primary intention was to hold the agricultural zoned land with the possibility at some point making a capital gain as property prices rose over time.

The property was used by various unrelated parties over the years with no consideration being paid, but the benefit to the Company was that the land was being cared for by them so there was little direct involvement by the Company or Graham in the maintenance of the land.

Although there was an intention to, at some point make a profit from long term capital growth, this is not inconsistent with other taxpayers who purchase other capital assets or investments. That is, it does not infer on its own that any profit made is necessarily on revenue account.

Did the intention of the Company change since the time of purchase of the property to a profit making purpose?

TR 92/3 states that it is necessary to consider whether a taxpayer must have the requisite purpose at the time of entering into the relevant transaction or operation. If a transaction or operation involves the sale of property, it is usually, but not always, necessary that the taxpayer has the purpose of profit-making at the time of acquiring the property.

The Commissioner must also turn his mind to whether the original intention of the Company changed at a later time, and, if so, the point in time that the profit making intention can be discerned from an objective consideration of the facts.

Paragraph 42 of TR 92/3 indicates a taxpayer's intention may change to profit-making intention after the time of acquisition. It states:

42. For example, if a taxpayer acquires an asset with the intention of using it for personal enjoyment but later decides to venture or commit the asset either:

(a) as the capital of a business; or

(b) into a profit-making undertaking or scheme with the characteristics of a business operation or commercial transaction,

The activity of the taxpayer constitutes the carrying on of a business or a business operation or commercial transaction carrying out a profit making scheme, as the case maybe. The profit from the activity is income although the taxpayer did not have the purpose of profit making at the time of acquiring the asset.

This is supported by the decision of the Federal Court in Stevenson v Commissioner of Taxation (1991) FCR 282 (Stevenson) where doubt was raised in relation to the position that a landowner may only form a profit-making intention in respect of any asset at the time of acquisition.

Although the landowner in Stevenson did not acquire land with an intention to resell it many years later, the landowner subdivided his land into 180 lots and the scale of the borrowings used to finance the subdivision and sale of the land resulted in the commitment of the use of the land to a profit-making undertaking scheme or business activity.

Based on the sequence of events, the Director of the Company has, after the rezoning of the land, been able to consider the options for the use of the land.

The change in zoning by the x in detail in the x.

The Company has more than one means in order to realise a profit as a consequence of the rezoning. The company could continue to hold the land for long term capital growth or sell the land to a developer, or venture the land into and arrangement to develop the land.

The facts show that after the land was rezoned in 20xx, the Company was approached by and declined to sell the land outright to a developer who had approached the Company.

The Company had not up to this point in time used the agricultural land that it had purchased for farming or any agricultural purpose. The Company was holding the land.

The Agreement entered states that the Company is desirous of realising the value of the land in the most advantageous and economically beneficial way.

The Agreement and other commercial documentation shows that the land has been ventured into a development of a large scale by the Company. The base value of the land was agreed by the parties to be $xx and the subdivision would result in approximately x lots. The first draft pricing shows estimated sales of approximately $xx. The pre-development costs being incurred include an amount of $xx under the x.

Given the extent of the sophistication of the Agreement entered, the size and scale of the development that the Company has chosen, and that the Company had not used the land up to this point for any other purpose, the Commissioner believes on balance from the objective information that at the time of entering the Agreement the Company's intention did change, and that the Company has entered into the Agreement with a clear profit making intention.

It is also helpful to note that it is not necessary that the intention or purpose of profit making be the sole intention for entering into a transaction. It is sufficient if profit making is a significant purpose (FC of T v. Cooling 90 ATC 4472 at 4484).

The Company initially intended to make a profit or gain from the appreciation of the value of the agricultural zoned land over time. Post rezoning of the land by the Melton Council, by you entering into the current Agreement, the Company has also intended that it make a profit but has changed its decision on how to best use the asset it holds.

The Commissioner believes that there is sufficient objective evidence to show that the Company holds a profit making intention at the point in time that it entered the Agreement and ventured the land into the development as opposed to the other available options of dealing with the asset it holds.

The Commissioner considers that this intention to realise the maximum profit possible by development is reflected in the sequence of events leading up to the decision to enter the Agreement, and crystallises at the time the Company signs the Agreement and ventures the land into the development.

Did the Company enter a Commercial transaction?

TR 92/3 provides guidance that if the taxpayer is not carrying on a business or if the transaction or operation is not in the course of the taxpayer's business that it is necessary to consider if the transaction is a commercial transaction.

In this case the Commissioner has not reached a conclusion as to whether the Company is carrying on a business of development. Even if the Company is passive in the development itself there may be strong indicators that a business is being carried on. As no conclusion has been drawn on this point it is necessary to consider if the transaction that the Company has entered is a commercial transaction.

The relevant parts of TR 92/3 are paragraph 46 and 47 which state:

Business operation or commercial transaction

46. If a taxpayer enters into a transaction in the course of carrying on a business, it is not necessary to consider whether it is a business operation or commercial transaction. However, it is necessary to consider this issue if the taxpayer is not carrying on a business or if the transaction or operation is not in the course of the taxpayer's business, e.g. if a sole trader carrying on a retail business acquires shares.

47. For a transaction to be characterised as a business operation or a commercial transaction, it is sufficient if the transaction is a business or commercial in character (see Whitfords Beach at 150 CLR 379; 82 ATC 4044; 12 ATR 707). Whether a particular transaction has a business or commercial character depends very much on the circumstances of the case.

Some matters which may be relevant in considering whether an isolated transaction amounts to a business operation or commercial transaction are the following:

(a) the nature of the entity undertaking the operation or transaction;

(b) the nature and scale of other activities undertaken by the taxpayer;

(c) the amount of money involved in the operation or transaction and the magnitude of the profit sought or obtained;

(d) the nature, scale and complexity of the operation or transaction;

(e) the manner in which the operation or transaction was entered into or carried out;

(f) the nature of any connection between the relevant taxpayer and any other party to the operation or transaction;

(g) if the transaction involves the acquisition and disposal of property, the nature of that property; and

(h) the timing of the transaction or the various steps in the transaction.

In regards to the above points the Commissioner notes the following.

In this instance, it can be seen from the Agreement that this is a development on a very large scale. The base land value is set at $xx. The project costs are as yet undefined, but with the base land value set at $xx, these costs are expected to be commercially significant.

The Developer has procured a development cost estimate from xx which shows the project costs to be approximately $xx. There is an estimate of pre development costs for x sharing of $xx. There would also be costs similarly for x and x. It can be seen that the costs being incurred to prepare and develop the land are quite large in relation to the relative value of the land itself.

The structuring of the split of profit from the development is also a consideration because it shows who bears the risk of the Project. In this case the x set out in x ensures that the project costs, and any excess costs (if any) are borne by the Company (as the land owner) rather than by the Developer. That is the Company, as the landowner, is exposed to the financial risk of the project, even though the Agreement provides legal and financial control to the Developer to carry out the Project.

The formula in the agreement demonstrates that the Landowner is in fact responsible for all of the Project Costs. Any Project Cost incurred by the Developer is in reality incurred by the Developer as an agent for the land owner (Company). Further, if there is a cost variation from the Project it will be the Company that bears the risk of those costs. The Developer's risk is mitigated as the Developer will be fully reimbursed for those costs through the Development Fee as calculated by the agreed formula.

The Land is provided as security for finance raised by the Developer, and to this extent, the Company is not 'passive', but fully committed to achieving the Company's objective to develop, subdivide and sell xx residential lots.

The control and roles in the development is also a consideration. It is a condition of the Development Agreement that the Company must execute all documents or instruments reasonably required to give effect to the implementation of the terms of the Agreement, including providing a providing the Developer with a Power of Attorney if required. The Agreement recognises that even though the Company is passive in its role, the Company, as the owner of the land must sign the loan documentation and also to lodge the development application with Council. Some elements of legal and financial control remain with the Company.

The Company stated it will not be undertaking an active role in the subdivision. Rather, it has engaged the Developer to assist with every aspect of the subdivision including planning, surveying, engineering, dealing with council, engaging and managing contractors and marketing and selling the subdivided lots.

Although this may be the case, in engaging the Developer and executing the Development Agreement, the Company is essentially carrying on a development activity with and through the Developer in a similar manner to that which is common in the industry, particularly with farmland subdivision and greenfields development.

This situation is similar to the facts in Abeles and Anor v. Federal Commissioner of Taxation (1991) 91 ATC 4756 (Abeles case) where the taxpayers engaged a person with expertise in development of their land. In this case O'Loughlin J

stated:

In the application of these principles to the facts of this case, I have concluded that the taxpayers exceeded the bounds of the mere realisation of their land in an enterprising way. No doubt they were aided by Mr. Markham in making their decisions; perhaps, arguably, he induced them, first to agree to subdivide and then to participate in the larger plan that involved the six blocks and the four groups of owners. But, in these particular circumstances, they cannot hide behind Mr. Markham. He was their agent and his conduct was their conduct. Through Mr. Markham, the brothers went beyond a mere simple subdivision and sale of their 10 acres; they entered into an arrangement that was in the nature of a joint venture, sharing costs and expenses rateably; they even participated in variations to the boundaries of their land in order to present, and participate in, the best plan of subdivision. Their financing commitment was heavy; their established line of credit was $90,000 more than they paid for the land five years earlier; they allowed for the subdivision being a lengthy project and arranged with the finance company to accrue interest on the borrowed moneys. Although the size of a project is not a conclusive factor, it is one of numerous matters that are to be weighed in the balance. In this case, the readiness of the brothers to involve themselves with the other owners was more consistent with a business enterprise than a private realisation. The taxpayers, through their agent, Mr. Markham, chose to embark upon a business-like and efficient program of subdivision.

While the Abeles case involved a joint venture, which is not present on the current facts, the Commissioner considers by entering into the subcontractor arrangement to carry out a 'business like and efficient program of subdivision' on behalf of the Company, is an extremely strong factor showing that the arrangement is more akin to a business enterprise rather than a private realisation.

In looking at the nature and scale of the level of activity on the land under the proposed Indicative Plan of Subdivision (version 07) shows the large nature of the development with:

·         The xx being developed.

·         Provision of xx open public space to be acquired by xx.

·         The remaining x to be developed into xx lots.

·         Proposed land swap of xx to a xx so that the proposed lots can be planned for maximum commercial potential.

·         Roadworks, .....

There is a xx in place to share costs with xx with the x having an agreed portion of x% of costs.

There is also a real estate agency engaged to market and sell the lots with a current marketing budget of $xx. With land to be released over xx.

In Whitfords Beach, Mason J made the following comments in relation to size and scale of activity:

I do not agree with the proposition which appears to be founded on remarks in some of the judgments that sale of land which has been subdivided is necessarily no more than the realization of an asset merely because it is an enterprising way of realizing the asset to the best advantage. That may be so in the case where an area of land is merely divided into several allotments. But it is not so in a case such as the present where the planned subdivision takes place on a massive scale, involving the laying out and construction of roads, the provision of parklands, services and other improvements. All this amounts to development and improvement of the land to such a marked degree that it is impossible to say that it is mere realization of an asset. We need to bear in mind that the subdivision of broad acres into marketable residential allotments involves much more in the way of planning, development and improvement than was formerly the case.

In consideration of all of the above, and notwithstanding the length of time the land has been held, and that the Company will not actively undertake the development works themselves, when weighing up the relevant factors, the Commissioner considers that the Company has clearly exceeded the bound of mere realisation of the land.

The Commissioner contends that the scale of the activities and the improvements to the land go beyond merely realising the asset in the most enterprising way. Therefore the Commissioner contends there was a change of purpose in relation to the use of the land and at the time of entering the Agreement the Company has entered into a commercial transaction.

Conclusion

The Company's profit from the Project will be income from an isolated transaction as both the following elements are satisfied:

·         The Company by entering into the Agreement for the Project had an intention or purpose of entering the transaction to make a profit or gain;

·         The transaction was entered into, and the profit was made, in the course of a commercial transaction.

The income will be assessable ordinary income under section 6-5 of the ITAA 1997 as income from a commercial transaction with a profit making purpose.

Question 2

Summary

CGT event A1 will occur on the entering into the contracts for the sale of each subdivided lot, but will not be assessed as a capital gain as the sale of the properties is on income account.

Detailed reasoning

Section 102-5 of the ITAA 1997 provides that your assessable income includes an amount that is a net capital gain.

Under section 102-20 of the ITAA 1997, you can only make a capital gain or loss when a CGT event happens. The gain or loss is made at the time of the CGT event and can only be made in respect of a CGT asset.

Note 1 of section 108-5 of the ITAA 1997 lists land and buildings as an example of a CGT asset.

Pursuant to section 104-10 of the ITAA 1997, CGT event A1 occurs when a taxpayer disposes of an asset. The time of the event is when a contract is entered into.

Therefore, at the time of entering into a contract for the disposal of each subdivided lot, CGT event A1 will occur as per section 104-10 of the ITAA 1997.

However, a capital gain is reduced under section 118-20 of the ITAA 1997 if, because of the CGT event giving rise to it, a tax provision includes an amount in the taxpayer's assessable income. This section prevents an amount being assessed as a capital gain if it is taxed under another provision.

As the sale of properties has been determined to be on income account, and included in the taxpayer's income under section 6-5 of the ITAA 1997 (see question 1 above), it will not be assessed as a capital gain.

Question 3

Summary

Yes, your supplies of the subdivided land lots at xx (the property or the land) will be considered taxable supplies pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Detailed reasoning

As a proprietary company you are an entity for the purposes of the GST Act.

Section 9-40 provides that you are liable for GST on any taxable supplies that 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.

For the supply of approximately xx subdivided lots to be a taxable supply, all of the requirements in section 9-5 must be satisfied.

In this case, you will be selling vacant residential lots for consideration in Australia. Therefore, paragraphs 9-5(a) and 9-5(c) are satisfied. Further, the supply of the lots in your situation will neither be GST-free or input taxed.

Accordingly, we must determine whether:

1. your sale of the lots are in the course or furtherance of an enterprise that you are carrying on in accordance with paragraph 9-5(b) of the GST Act, and
2. if so, are you required to be registered for GST and thereby satisfying paragraph 9-5(d)?

Your venture

The objective at time of your acquisition of the agricultural Land was to hold the property for long term capital growth. At the time of acquiring the property there was no established plan or an exit strategy as to how or when this would be achieved.

The xx notified you that they rezoned your Land to be residential. This occurred without any input from you. As a result of the rezoning you had unsolicited approaches to both sell the land outright and to develop the land with a joint venture partner. You made the decision to enter into a development agreement with the Developer, xx. The development agreement is the basis for a project whereby your Land is to be developed and then subdivided into xx in accordance with approvals to be provided by the Council per the xx plan for the purpose of sale over a x development.

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 in the form of an adventure or concern in the nature of trade. The phrase 'carry on' in the context of an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

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 provides guidance on what activities will amount to an enterprise.

Paragraph 234 of MT 2006/1 distinguishes between activities done in the form of a 'business' and those done in the form of 'an adventure or concern in the nature of trade'. In particular:

·         A business encompasses trade engaged in on a regular or continuous basis.

·         An adventure or concern in the nature of trade may be an isolated or one-off transaction that does not amount to a business, but which has the characteristics of a business deal.

The analysis in question one above has communicated that the income from the project will be assessable ordinary income under section 6-5 of the ITAA 1997 as income from a commercial transaction with a profit making purpose.

Whilst there are some factors that indicate activities undertaken 'in the form of a business', from a goods and services tax perspective, the company's activities are considered a 'one-off' isolated property transaction in the form of an adventure or concern in the nature of trade.

MT 2006/1, paragraphs 233 to 257 explains that an entity is carrying on an enterprise where activities are being done 'in the form of an adventure or concern in the nature of trade'. This is not a defined term. However, MT 2006/1 points out in para 241 that this expression was used in the definition of enterprise as a result of a lengthy history of case law setting out the taxation of isolated transactions.

MT 2006/1 at paragraph 262 explains an entity is carrying on an enterprise where there are 'one-offs' or isolated real property transactions. Paragraph 266 provides that in determining whether activities relating to isolated transactions are an enterprise or are the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each particular case.

Further where the activities involve subdivision and sale of real property, MT 2006/1 lists a number of factors drawn from Statham & Anor v. Federal Commissioner of Taxation (Statham) and Casimaty v. FC of T (Casimaty) to determine whether the activities are an adventure in the nature of trade. These factors are set out at paragraph 265 of MT 2006/1.

·         the nature of the entity undertaking the operation or transaction;

·         the nature and scale of other activities undertaken by the taxpayer;

·         the amount of money involved in the operation or transaction and the magnitude of the profit sought or obtained;

·         the nature, scale and complexity of the operation or transaction;

·         the manner in which the operation or transaction was entered into or carried out;

·         the nature of any connection between the relevant taxpayer and any other party to the operation or transaction;

·         if the transaction involves the acquisition and disposal of property, the nature of the property, and

·         the timing of the transaction or the various steps in the transaction.

The relevant intention or purpose of the taxpayer is not the subjective intention or purpose of the taxpayer but rather it is the taxpayer's intention or purpose discerned from an objective consideration of the facts and circumstances of the case.

While holding an asset for a considerable period of time may indicate that it is a long term capital asset, the intention of the taxpayer at the time of acquisition, including any subsequent change in intention or use of the asset is an important consideration.

To illustrate this further, the following cases have considered the issue of intention and use in the context of whether the proceeds from a venture are of a capital or revenue nature.

Whitfords Beach Pty Ltd v Federal Commissioner of Taxation (1983) 14 ATR 247 where the taxpayer acquired 1,584 acres of land for non- commercial purposes. Thirteen years later, the original shareholders sold out and the company and the new ownership adopted an entirely new set of articles. It then embarked on a long and complex course of activity which involved the land being rezoned and developed as a residential subdivision. Vacant lots were sold over a period of many years for a substantial profit. The High Court held that the adoption of a new set of articles resulted in a change in the intended usage of the land. This resulted in the taxpayer's activities going beyond the realisation of a capital asset, with the activities constituting the carrying on of an actual business of subdividing and selling land.

Statham & Anor v. FC of T 89 ATC 4070 20 ATR 228 (Statham's case) where the property was subdivided and sold after a business of raising cattle had failed. The taxpayer relied on the local council to carry out the subdivision work and the local real estate agents handled the advertising and sale of the lots. The Full Federal Court held that what occurred was the realisation, by the most advantageous means, of the asset which the owners had on their hands when they abandoned the intention of farming the subject property.

Casimaty v FC of T 97 ATC 5135; (1997) 37 ATR 358 (Casimaty's case) where due to the growing debt and the ill health of the taxpayer, primary production land was progressively subdivided and sold off over a period of 18 years. There was no coherent plan conceived for the subdivision of the whole property. The taxpayer had acquired and had continued to hold and use the residence and conduct the business of a primary producer on the property. Therefore, there was no change of purpose of object for which the property had been held. In his judgment, Ryan J in the Federal Court held that the profits resulted from the mere realisation of a capital asset and as such the profits were not assessable as ordinary income.

Stevenson v. Federal Commissioner of Taxation (1991) 29 FCR 282 91 ATC 4476 22 ATR 56 (Stevenson case) where taxpayer had owned farming land for many years, selling a portion of the land to a third party to be used for agricultural purposes. In the early 1970's he decided to scale back his farming activities and sell most of the remaining 90 acres, other than a few acres retained for his use. He could not source a developer who would pay his sale price and in 1976 he determined that he would subdivide the land himself. He commenced subdividing the land in stages, obtaining finance and personally arranging for the construction of the necessary earthworks, storm water drains, guttered road works and other improvements to the land. Around the same time his farming income consisted of mainly agistment income. Throughout the process the taxpayer had personally dealt with councils, engineers, and statutory utilities. He advertised the development himself, did not engage the services of any particular real estate agent to assist him, dealt personally with prospective purchasers, did some of the physical work himself and fixed the sale price for the subdivided lots, being 220 lots. It was held that the taxpayer was carrying on a business of developing land.

Paragraph 266 of MT 2006/1 provides that in determining whether activities relating to isolated transactions are an enterprise or are the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each particular case. No single factor will be determinative; rather it will be a combination of factors that will lead to a conclusion as to the character of the activities.

Change in purpose for the land and profit making intention 'isolated one-off transactions'

Your intention at the time of acquiring the agricultural land was for the purpose of long term capital growth. You have not worked the land for agricultural purposes nor did you acquire the land adjacent to or close by to any other agricultural land for which you have an interest for the purpose of agricultural pursuits. To maintain the property you entered into xx arrangements with xx.

You advised that at the time of acquisition there was no planned exit strategy, other than at some point the property would be sold, with the intention of a profit at a later date.

Your subsequent actions of entering into a commercial arrangement for developing and subdividing your land for the purpose of sale is consistent with holding the property for profit making purposes, although the profit may or may not have been realised in a manner that you had originally contemplated.

On the facts provided, you are applying all of the land to this subdivision of land venture. No part of your land is being used to continue your x activities on a xx basis. The development is x hectares and there is also provision for x hectares of public open space to be acquired by xx from you. The x hectares under this plan are to be developed, subdivided into approximately xx lots and sold. There is no evidence that the resulting lots will be held for a private purpose and that all of the land held being xx hectares, will be sold.

You entered a development agreement in order to bring this project to fruition with the Developer and is consistent with making a profit of a revenue nature as a consequence of your change in purpose for the use of your land.

The project objectives are defined to include amongst other things ... maximises the commercial potential .... of the land'.

The agreement demonstrates a profit making motive with significant outgoings. The project costs are defined to mean:

.........

The development fee you are paying to the Developer is an initial $xx per month plus GST and the balance is to be paid per the formula in xx of the agreement. It is:

PC+ 5% of NP

Where NP = GR - (BLV + PC)

Where

NP = Net Proceeds of the Land

GR = Gross Revenue

BLV = Base Land Value

PC = Project Costs

LO = Land Owner

DC = Development Consultant

Plus any GST payable in respect of those amounts.

Further, the base land value is set at $xx. The project costs are as yet undefined, but with the base land value set at $xx, these costs are expected to be commercially significant. Your x procured a development cost estimate from xx which shows the costs to be approximately $xx. This formula ensures that the excess costs if any are borne by you as the land owner rather than your x.

You contended that when the property was purchased there was no profit (revenue) motive which is accepted. However, in the Commissioner's view, when the property was ventured for land development purposes at or sometime after the approach from xx, that the potential for the property to be sold as an investment (capital) was discarded as a viable outcome.

Business operation or commercial undertaking

The following actions demonstrate your land development activities are being undertaken in a commercial and business-like manner.

The Land you acquired (previously zoned agricultural land) was not used for any private purpose or for personal enjoyment.

The entity structure used to acquire the land is a corporate entity (company) structure. Acquiring the property using this entity structure is an indicator that there was no intention to use the land for private or recreational enjoyment.

The Land from the date of acquisition has not been used for earning income from your agricultural pursuits.

You have not explained your capital growth or exit strategy for this land when you acquired the property. After receiving unsolicited approaches to acquire your land, you were presented with an opportunity from a Developer who is providing services to owners of land suitable for residential land development due to the change in x rezoning.

You entered into a Development Agreement with the Developer to develop your land for residential purposes that then could be subdivided into xx lots suitable for sale to the public.

Accordingly, there is a coherent plan in place to realise your objective;

·         You acquired the land and held it until the commercial conditions presented in order to subdivide and sell your Land as residential lots

·         There are currently draft plans prepared by xx.

·         The plans also indicate the potential of a land swap with another party to maximise the number of lots.

·         When rezoning will be approved, the Land is to be marketed for sale pursuant to a marketing budget that has been acquired by your agent. The current marketing budget is $xx.

·         Under your plan the lots will also have differing densities - standard and medium.

·         Your agents also procured an assessment of the lot pricing for the xx lots over the stages of the development.

The agreement you entered into with the Developer is not a standard contract for a single parcel of land. It is an agreement to reflect a commercial business undertaking specific to the development of your land.

The agreement sets out your obligations, and the Developer's duties and obligations.

The agreement also states that you appoint the Developer as your agent to undertake all aspects of marketing and sale of the developed lots.

Through your agent, you will enter into contracts for the sale of individual lots with the public.

The size and scale of the development is not small (xx) and is not carried out in a piecemeal way. All of the Land is subject to the development and is not sold off in parcels in a way that would allow you to use the remaining land for any other purpose.

According to the xx documents provided being the xx costs estimate dated xx 20xx the following works and activities are to be undertaken on your land, including, but not limited to:

·         Allowance for a development

·         Services to each lot including sewerage, power and water.

·         An area is allocated to proposed public open space.

·         Road ....

At all times you hold the legal ownership in your Land, however the development agreement under xx requires you to grant a charge over the property to the Developer:

..................

Consideration has been given to the length of time you held the land between buying and selling, and that you were looking for long term capital appreciation. Consideration has been given to the fact that you are not directly involved with the development activities or any other development activities.

The amount of money involved in the operation or transaction and the magnitude of the profit sought

As stated above the land value alone is $xx. The development is scheduled over x with estimated construction costs of xx and it is approximately xx lots. There is a pricing matrix and the x from xx 20xx to xx 20xx.

Scale is an important indicator of whether the project is a mere realisation or an adventure in the nature of trade as a profit making undertaking or scheme.

In the matter of Stevenson v FCT 91 ATC 4476, one of the key points to come from this matter is the question of scale. Volume clearly does matter. In Stevenson, Jenkins J quoted Deane J in Whitfords Beach v FCT (1979) 28 ALR 637 at 653-654 stating

Where the activities of dividing and improving are of sufficient scale and scope, the fact that no prior independent business existed will not prevent those activities themselves constituting a business of which the profits arising on sale are the ordinary proceeds.

Jenkins J went further and added what Mason J had said in agreement with Deane J in the appeal case Federal Commissioner of Taxation v Whitfords Beach Pty. Ltd. (1982) 150 CLR 355 at 385:

I do not agree with the proposition which appears to be founded on remarks in some of the judgments that sale of land which has been subdivided is necessarily no more than the realisation of an asset merely because it is an enterprising way of realising the asset to the best advantage. That may be so in the case where an area of land is merely divided into several allotments. But it is not so in a case such as the present where the planned subdivision takes place on a massive scale, involving the laying out and construction of roads, the provision of parklands, services and other improvements. All this amounts to development and improvement of the land to such a marked degree that it is impossible to say that it is mere realisation of an asset. We need to bear in mind that the subdivision of broad acres into marketable residential allotments involves much more in the way of planning, development and improvement than was formerly the case.

The scale of this development is quite large and cannot be described as small with little risk.

The manner in which the operation or transaction was entered into or carried out

It is the Commissioner's view that the facts of this case are not sufficiently similar to Casimaty or Statham.

In Casimaty (which involved eight separate subdivisions carried out between 1975 and 1993) Ryan J stated that a 'coherent plan... conceived at the outset for the subdivision of the whole of Lot 2, even in stages, to maximise the return from the aggregate of the individual lots' did not exist:

"A related consideration is the fact that the development and subdivision of Acton View was undertaken piecemeal in response to the exigencies of increasing debt and deteriorating health. No coherent plan was conceived at the outset for the subdivision of the whole property, even in stages, to maximise the return from the aggregate of the individual lots. Even at the date of the last of the assessments to which these proceedings are related, an area considerably over one third of the whole original property had not been subdivided".

The evidence provided does not bear out that your planned land development and subdivision is done in a piecemeal manner.

The nature of any connection between the relevant taxpayer and any other party to the operation or transaction

The original relationship with the Developer was one of x and x, however, on the facts provided x retired to become a development consultant. The Developer approached you with a proposition to engage in what is a profit making undertaking or scheme. Based on the agreement extracted above you will grant the Developer a charge over your property, and an ability to grant a power of attorney in order to allow the Developer to undertake what is required as your action.

If the transaction involves the acquisition and disposal of property, the nature of the property

According to the material provided by your agent, there will be a land swap with x to maximise the lot size.

In Re: Paul Richard Abeles And Peter Weingarten Abeles And: Federal Commissioner Of Taxation [1991] FCA 542 O'Loughlin J. in reviewing the authorities placed great emphasis on the fact that the Abeles brothers had engaged in a profit making venture because they had joined in swapping of land with neighbours and all costs and had been shared rateably. The brothers had no property development experience, but despite this were found to have done more than conduct a mere realisation. This has some factual similarity to the Abeles case.

There are similarities between this case and your land subdivision venture.

There is a land swap arrangement. In your case this is to maximise the number of lots available for sale, and the xx clear that you and the xx will have the benefit of the other's land.

The timing of the transaction or the various steps in the transaction

As stated above, this is a development on a large scale, set out in x of development. You have received professional advice setting out how these steps will be carried out in a manner befitting a professional development.

You have engaged the services of an entity that will provide project development services, financing and other services for a development fee once the subdivided land lots are sold.

You will also be selling a large parcel of land to the x in order to fund the development.

Commercial risk is a characteristic in determining whether an isolated activity is profit making undertaking or scheme. As stated above, the Company is bearing considerable economic risk in undertaking this project. The Development Agreement, makes it clear that the Developer is acting as agent of the landholder. If we return to the development fee formula:

....

This formula shows that the Land owner is responsible for all the Project Costs (PC). Therefore any Project Cost incurred by the Development Consultant has in reality been incurred by the Development Consultant as agent for the landholder, as the Development Consultant is passing on all those costs on to the landholder to pay. If for example there are considerably higher costs from the project, then the Landholder bears the risk of those costs, whereas the Development Consultant is mitigating any risk as they will be fully reimbursed for those costs through the Development fee.

This is true for all costs. It is noted that the Developer is committed to the xx contributions in the name of xx, but even those costs can be recoverable from the Land owner whom may in the extreme case lose ownership of the land.

The Land is provided as security for finance raised by the Developer, and to this extent, the Company is not 'passive', but fully committed to achieving the Company's objective to develop, subdivide and sell xx residential lots to the public.

The steps taken by the Company to progress this development indicate that the risk of higher costs of bringing the maximum number of lots to market were considered and the decision was made to continue. Selling the Land en globo to a developer or other party would show the risk appetite to be much less.

Required to be registered for GST

Section 23-5 of the GST Act provides that you are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold. The registration turnover threshold is currently set at $75,000.

Furthermore, section 188-10 of the GST Act provides that your GST turnover meets the registration turnover threshold of $75,000 if your projected GST turnover meets $75,000. Your projected GST turnover is calculated by adding the value of all the supplies you make or are likely to make in a particular month and in the next 11 months (excluding certain supplies such as input taxed supplies).

If the proceeds from the sale of the lots will exceed $75,000 and are likely to be sold in the next several months, it is highly probable that your projected GST turnover exceeds $75,000 and that you are therefore required to be registered for GST.

As set out above we consider that you are carrying on an enterprise of property development. You are not merely realising a capital asset. Paragraph 31 of GSTR 2001/7 provides commentary on what is meant by 'capital assets'. It refers to those assets that make up the 'profit yielding structure', as opposed to trading assets (revenue assets) that are turned over and bought and sold in the course of trading operations.

We consider that the land is a revenue asset sold in the course of your trading operations.

As set out above we consider that:

·         you are carrying on a property development enterprise, and

·         your supplies in this enterprise will be supplies of the 156 lots of land.

These assets are not for personal use or enjoyment and are not to be retained for investment purposes. These assets are revenue assets and therefore the value of the supply of the lots will be included in your turnover threshold. As the sale value exceeds $75,000 you are required to be registered for GST.

You satisfy the requirements of paragraph 9-5(d).

The supply of all xx lots will be taxable supplies as per subsection 9-5 of the GST Act.

Conclusion

The Commissioner considers that there is a change of purpose for which the property was initially held and there is a coherent plan for the property subdivision whereby you engaged project management services from another entity as part of a development agreement. From the facts provided, there is a level of development of the property resulting in xx subdivided land lots that is beyond a mere realisation. Your venture is carried out in a commercial and business-like manner to characterise the venture as an activity or series of activities done in the form of an adventure or concern in the nature of trade, and is an enterprise for GST purposes.

Your supplies of the lots are in the course or furtherance of an enterprise that you are carrying on and satisfy section 9-5 of the GST Act.