Edited version of private advice

Authorisation Number: 1051617626826

Date of advice: 11 December 2019

Ruling

Subject: GST registration and the sale of two new residential dwellings

Question

Are you required to register for GST in relation to the sale of new residential dwellings?

Answer

Yes.

Relevant facts and circumstances

You purchased a property some years ago.

At the time of purchase the intention was to complete the subdivision of the land into numerous lots with one being retained and the surplus lots to be sold.

Subsequent to acquisition, you entered into discussions with surveyors with respect to the subdivision process.

You proceeded to engage the services of a consultant to complete the subdivision process.

There was no rezoning application. The only planning approvals lodged were for the subdivision and you used the services of a surveying company.

The construction process was funded through various sources.

The properties are now close to completion of construction and you wish to sell the new dwellings.

You have been advised by the selling agent that you need to consider whether the sale is subject to GST.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) sections 9-20, 23-5 & 188-10

Reasons for decision

Given your intentions at the time of acquiring the property and your subsequent activities, we consider that your activities fall within the scope of an isolated transaction of real property and not a mere realisation of a capital asset as discussed in MT 2006/1. Your activities will therefore be considered an 'enterprise', being an activity or a series of activities, done in the form of an adventure or concern in the nature of trade as defined in subsection 9-20(1)(b) of the GST Act.

GST registration

You are required to register for GST if you carry on an enterprise and your turnover meets the GST registration turnover threshold (currently $75,000). As discussed above, you are carrying on an enterprise. Therefore you need to consider whether your turnover will be $75,000 or more (i.e. meets the GST registration turnover threshold).

Section 188-10 provides that your turnover will meet the threshold if:

(a) ...; or

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

The transfer of a capital asset is disregarded when calculating your projected GST turnover.

Paragraphs 258 and 259 of MT 2006/1 provide guidance on the distinction between trading/revenue assets and investment/capital assets providing the following:

·        Assets can be categorised as trading/revenue assets or capital/ investment assets. 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.

·        Examples of capital/investment assets are rental properties, business plant and machinery, the family home, family cars and other private assets. The mere disposal of capital/investment assets does not amount to trade.

Assets can change their character from a capital/investment asset to a trading/revenue asset, or vice versa, but cannot have a dual character at the same time.

In your case at the time of purchase the intention was to complete the subdivision of the land into numerous lots with one being retained and the other lots to be sold. Therefore, we consider the property was always held for the purpose of sale. The property was not held for personal enjoyment or investment. The property is a revenue asset and not a capital asset. Therefore the proceeds from the sale of the subdivided land with the new dwellings would not be excluded from your projected GST turnover.

As you are carrying on an enterprise and the proceeds from the sale exceed the GST registration turnover threshold of $75,000, you would be required to register for GST.