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Edited version of private advice
Authorisation Number: 1051667582344
Date of advice: 7 May 2020
Ruling
Subject: GST and sale of property
Question
Is the sale of subdivided land a taxable supply under section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
No
Section 9-5 of the GST Act provides that you make a taxable supply if:
· You make the supply for consideration; and
· The supply is made in the course or furtherance of an enterprise that you carry on; and
· The supply is connected with the indirect tax zone; and
· 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.
The sale of the subdivided lots will be for consideration, the supply is connected with the indirect tax zone and you are registered for GST. Therefore, the only issue is whether the supply is made in the course or furtherance of an enterprise that you carry on.
You conducted a retail plant nursery enterprise from 2004 to 2010. What needs to be considered whether you are carrying on a property development enterprise as opposed to the mere realisation of a capital asset.
In the cases of Statham & Anor v. Federal Commissioner of Taxation 89 ATC 4070 and Casimaty v. FC of T 97 ATC 5135, farm land was subdivided and sold. Minimal development work was undertaken to meet council requirements and to improve the presentation of certain allotments. On the particular facts of these cases the courts held that the sales were a mere realisation of a capital asset.
Your subdivision is funded by inheritance money and undertaken to boost your superannuation funds. You engaged professionals for the engineering, design and installation of water, sewerage and the driveway rather than doing these yourself. If financially possible, you would like to retain the lot with the existing residence on it. The other lots will be sold as vacant land. You have not undertaken or been involved in any land development prior to this subdivision and have no plans for any future land development.
Based on the facts that you have provided; we consider that the factors point towards the lack of a business or profit-making undertaking if you were to sell only one lot. As a consequence, you do not satisfy the second limb of section 9-5 of the GST Act and are not considered to be making a taxable supply for the sub-division.
Overclaimed GST
As you had claimed GST on the subdivision costs, you will need to make an increasing adjustment to input tax credits previously claimed. Section 129-40 of the GST Act states that you need to make an increasing adjustment to your activity statement if the actual input tax credits to which you are entitled, worked out based on your actual creditable purpose for the purchase, is less than the input tax credits you had claimed.
This ruling applies for the following period:
1 April 20XX to 30 June 20XX
The scheme commences on:
1 April 20XX
Relevant facts and circumstances
You are registered for GST.
You acquired a residential property (Property) in 20XX. You have lived in that property ever since then.
You used the property mainly for residential purposes.
You used a small part of the property to conduct a garden enterprise from 20XX to 20XX.
You applied for and received council approval a X lot subdivision on the property in 20XX. However, you did not proceed as the development costs were unfeasible.
You waited for the large subdivision on the property next door to be completed as they had to build a road past your property to access that property and your subdivided lots could share the same road, making your subdivision viable.
You applied for and received council approval a X lot subdivision on the property in 20XX.
The land will be subdivided into a total of X lots: one with the existing residence, one with a shed on it and the other two as vacant land.
If you are able to sell the other lots, you will retain the lot with the residence on it.
The intent of the subdivision work is to boost your superannuation funds.
You engaged professionals for the engineering, design and installation of water, sewerage and the driveway.
You have incurred a total of $XXX in subdivision costs.
The subdivision is funded by a small inheritance one of the partners received.
The subdivision activities commenced in 20XX and were completed in 20XX.
You have not undertaken or been involved in any land development prior to this subdivision. You have no plans for any future land development.
The only property you have sold before is your prior residence in 20XX.
Relevant legislative provisions
Section 9-5 of A New Tax System (Goods and Services Tax) Act 1999
Section 195-1 of A New Tax System (Goods and Services Tax) Act 1999
Section 129-40 of A New Tax System (Goods and Services Tax) Act 1999