Edited version of private advice

Authorisation Number: 1051559016902

Date of advice: 2 August 2019

Ruling

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

Question

Is the sale of the subdivided lot of land by you subject to GST?

Answer

No, the sale of the subdivided lot of land by you is not subject to GST.

Relevant facts and circumstances

·        You are an individual who owns a property in Australia.

·        You are not registered for goods and services tax (GST).

·        The current zoning of the property is Neighbourhood Residential Zone.

·        The property was large lot of vacant land.

·        The property was purchased under finance from the financial institute.

·        You purchased the property with the intention to subdivide it into two lots and sell one of the lots in order to fund the building of your new residential premises on other lot to use as your primary place of residence.

·        The costs of the subdivision of the property were paid from joint funds using your savings.

·        The work has been only carried out on the property to the necessary levels to achieve council approval for the subdivision.

·        You have not claimed any income tax deductions in your income tax returns for the expenses incurred in relation to subdivision of the property.

·        You do not have a business plan for the subdivision. There is no organisation set-up for the subdivision and sales of the subdivided lots of land.

·        There is no manager employed or business premises used to conduct these activities.

·        You have not previously been involved in the subdivision of land or the buying and selling of land for profit.

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 40-65

A New Tax System (Goods and Services Tax) Act 1999 Subsection 40-65(1)

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

A New Tax System (Goods and Services Tax) Act 1999 section 40-75

Reasons for decision

GST is payable on a taxable supply. Under section 9-5 of the GST Act, you make a taxable supply if:

(a)   you make the supply for consideration; and

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

(c)   the supply is connected with Australia; and

(d)   you are registered, or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

The facts indicate that you satisfy the requirements under paragraphs 9-5(a) and 9-5(c) of the GST Act as the supplies that you make are for consideration and the subdivided lot of land is located in Australia respectively.

Based on the facts provided, you satisfy the requirements under paragraphs 9-5(a) and 9-5(c) of the GST Act as the supplies that you make are for consideration and the subdivided lot of land is located in Australia respectively.

Therefore, we need to consider:

·        whether your sale of the subdivided lot of land is in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b) of the GST Act), and

·        whether you are required to be registered for GST (paragraph 9-5(d) of the GST Act).

Are you carrying on an enterprise?

The definition of an enterprise in section 9-20 of the GST Act includes (amongst other things) an activity or series of activities, done:

·        in the form of a business

·        in the form of an adventure or concern in the nature of trade, or on a regular or continuous basis, in the form of a lease, license or other grant of an interest in property.

The meaning of enterprise is considered in Miscellaneous Taxation Ruling MT 2006/1: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number, and Goods and Services Tax Determination GSTD 2006/6: does MT2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the GST Act. The principles outlined in these rulings have been applied in this case.

Paragraph 10 of GSTD 2006/6 provides that 'an activity or series of activities' means any act or series of acts that an entity does. The acts can range from a single act or undertaking, to groups of related activities, to the entire operations of the entity. Therefore, an enterprise can incorporate a single or one-off transaction such as the acquisition, subdivision and sale of real property.

The term business ordinarily would encompass a trade that is engaged in, on a regular or continuous basis, while an adventure or concern in the nature of trade may be an isolated or one-off transaction and includes a commercial activity that does not amount to a business but which has the characteristics of a business deal.

You advised that you have never been involved in property development before and that your activities represent a one off transaction on the land that you have purchased. In the absence of other facts, it is considered that your activities are not carried out in the form of a business if these activities are part of a one off transaction on the land and not the beginning of an ongoing land development business.

As your activities of development and sale of subdivided lot of land is an isolated transaction, it is necessary to determine whether the development and sale of subdivided lot of land will have a commercial flavour that goes beyond the mere realisation of an investment asset or private asset.

In the form of an adventure or concern in the nature of trade

Paragraph 13 of GSTD 2006/6 explains that 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. Isolated transactions with a commercial flavour are included in this category. Such transactions are of a revenue nature.

Paragraphs 262 to 302 of MT 2006/1 specifically consider isolated transactions and sales of real property. Paragraph 263 of MT 2006/1 states that the issue to be decided is whether the activities are an enterprise, in that they are of a revenue nature, as opposed to the mere realisation of a capital asset.

Paragraph 270 of MT 2006/1 states:

Land bought with the intention of resale

270. In isolated transactions, where land is sold that was purchased with the intention of resale at a profit (which would be ordinary income) the Commissioner considers these activities to be an enterprise. This would be so whether the land was sold as it was when it was purchased or whether it was subdivided before sale. An enterprise would be carried on in this situation because the activities are business activities or activities in the conduct of a profit making undertaking or scheme and therefore an adventure or concern in the nature of trade.

You stated that you purchased the property with the intention to subdivide it into two lots and sell one of the lots in order to fund the building of your new residential premises on other lot to use as your primary place of residence. On the basis of facts provided, it is clear that you purchased the property with the intention of resale at a profit. Therefore, your subdivision activities are planned and carried out in a businesslike manner. Accordingly, you are considered to be carrying on an enterprise as defined in section 9-20 of the GST Act, and the sale of the subdivided lot of land will satisfy the requirement of paragraph 9-5(b) of the GST Act.

We now need to consider if you are required to be registered for GST.

Are you required to be registered for GST?

You are not registered for GST, it needs to be established whether or not you are required to be registered for GST in relation to the sale of the subdivided lot of land.

Section 23-5 of the GST Act provides that an entity is required to be registered for GST if it is carrying on an enterprise and its GST turnover meets the registration turnover threshold. The registration turnover threshold for entities other than non-profit entities is $75,000.

Section 188-10 of the GST Act provides that your GST turnover meets the registration turnover threshold if:

·        your current GST turnover is at or above $75,000 and the Commissioner is not satisfied that your projected GST turnover is below $75,000; or

·        your projected GST turnover is at or above $75,000.

Your current GST turnover is the sum of the values of all supplies made in a particular month plus the previous 11 months. Your projected GST turnover is the sum of the values of all supplies made in a particular month plus the next 11 months.

In calculating current GST turnover and projected GST turnover, the following supplies (amongst others) are not included in the calculation:

·        supplies that are input taxed (which includes financial supplies, residential rent and sale of residential premises)

·        supplies that are not for consideration

·        supplies that are not made in connection with an enterprise that you carry on

·        supplies that are not connected with Australia.

In working out your projected GST turnover, paragraph 188-25(a) of the GST Act 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.

Capital asset or revenue (trading) asset

Paragraph 31 of Goods and Services Tax Ruling GSTR 2001/7 (which is available at www.ato.gov.au) provides that a capital asset is generally the 'profit-yielding subject' of an enterprise. They are often referred to as 'structural assets' and may be described as 'the business entity, structure or organisation set up or established for the earning of profits'. This is different from a revenue or trading asset, which is described in paragraph 34 of GSTR 2001/7 as an asset 'whose realisation is inherent in, or incidental to, the carrying on of a business'.

The term business ordinarily would encompass a trade that is engaged in, on a regular or continuous basis, while an adventure or concern in the nature of trade may be an isolated or one-off transaction and includes a commercial activity that does not amount to a business but which has the characteristics of a business deal.

On the basis of facts, it is considered that your subdivision and sale of the subdivided lot of land is the mere realisation of a capital asset. The sale of the subdivided lot of land is a part of the disposal of a capital asset. Hence, the sale of the subdivided lot of land is excluded from the calculation of your current and projected GST turnovers.

As you are not currently required to be registered for GST and there will be no increase in your GST turnover as a result of the sale of subdivided lot of the land, you will not meet the registration turnover threshold, and you are not required to be registered for GST under section 23-5 of the GST Act. Accordingly, you do not satisfy the requirement under paragraph 9-5(d) of the GST Act, and not required to be registered for GST.

In summary, your sale of the subdivided lot of land does not satisfy all the requirements of a taxable supply under section 9-5 of the GST Act, and is not taxable supply. Therefore, your sale of subdivided lot of land is not subject to GST.