Edited version of private advice

Authorisation Number: 1051739184125

Date of advice: 20 August 2020

Ruling

Subject:GST and subdivision

Question

Are you required to be registered for GST pursuant to section 23-5 of A New Tax System (Goods and Services Tax) Act 1999 in respect of the subdivision and subsequent sale of land located in Australia?

Answer

No

This ruling applies for the following period(s)

From 1 July 2019 to 30 June 2023

Relevant facts and circumstances

You are not registered for GST.

You, purchased your residence in 19XX. The property consisted of a main residence and undeveloped land. You have only ever used it for private purposes as your principle place of residence.

You have one other property.You have no intention to develop this property.

You were severely injured in a motor vehicle accident. Since then you have been unable to work and have been on a disability support pension with no other source of income. You were diagnosed with a terminal illness. Your doctors have advised you that you have approximately XX months to live.

To fund your medical and lifestyle expenses you intend to realise your largest asset, which is your property. You intend to subdivide the property, retain one lot containing your existing residence and sell the remaining lots.

In approximately 20XX you engaged a survey company to prepare a draft subdivision plan. The proposed plan divided the existing property into eight lots. However, you didn't proceed with the subdivision at this time.

In 20XX a local real estate agent approached you and suggested you subdivide the property and sell the resulting lots. You decided to revisit the plan to subdivide the property.

You sought development approval from the Council. Development approval with conditions was issued in 20XX.

Due to market conditions, you have decided it would be difficult to sell all seven lots per the initial subdivision plan and have decided to only create three lots.

You have not sought an updated development approval as you have received advice from the Council that creating the lots can be stage 1. You could seek to subdivide further lots at a later date.

You have a survey plan where the property is divided into x proposed lots:

• Lot XX - XX ha location of your principal residence.
• Lot XX - XX ha
• Lot XX - XX ha

There will be no development of the land beyond that necessary to comply with the conditions imposed by the Council.

On XX/XX/20XX you contracted to sell proposed lot XX. The purchaser agreed to loan you $XX to assist with the costs associated with subdivision. You must repay borrowed amount upon the settlement of the contract or within X months of the agreement, whichever is the earliest.

You have not previously been involved in land development or subdivided land.

You have no plans to subdivide any other properties.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-20

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-20(1)(b)

A New Tax System (Goods and Services Tax) Act 1999 Section 23-5

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 23-5(a)

Reasons for decision

·   all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

·   all reference materials referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

·   all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

Detailed reasoning

Section 23-5 states that you are required to be registered for GST if:

(a)  you are carrying on an enterprise; and

(b)  your GST turnover meets the registration turnover threshold (currently $75,000 unless you are a non-profit body).

The term 'enterprise' is defined for GST purposes in section 9-20 and includes, among other things, an activity or series of activities done in the form of an adventure or concern in the nature of trade (paragraph 9-20(1)(b)).

The question of whether an entity is carrying on an enterprise is examined in Miscellaneous Tax 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). Paragraph 159 of MT 2006/1 states that whether or not an activity constitutes an enterprise is a question of fact and degree depending on the circumstances of each individual case.

Paragraph 262 of MT 2006/1 acknowledges that the question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions.

In your case, the activity of subdivision and the subsequent sale of parts of the property is an isolated transaction. It is necessary to consider whether the activities were of an adventure or concern in the nature of trade (profit-making undertaking or scheme) or whether they were the mere realisation of a capital asset.

Paragraph 265 of MT 2006/1 lists a number of factors which can be used to determine whether activities in relation to a sale of property are done under a profit-making undertaking or scheme. If several of these factors are present it may be an indication that a business or an adventure or concern in the nature of trade is being carried on.

These factors are as follows:

-   there is a change of purpose for which the land is held;

-   additional land is acquired to be added to the original parcel of land;

-   the parcel of land is brought into account as a business asset;

-   there is a coherent plan for the subdivision of the land;

-   there is a business organisation (for example, a manager, office and letterhead);

-   interest on money borrowed to defray subdivisional costs was claimed as a business expense;

-   there is a level of development of the land beyond that necessary to secure council approval for the subdivision; and

-   buildings have been erected on the land.

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. This may require consideration of the factors outlined above. However, there may also be other relevant factors that need to be weighed up as part of the process of reaching an overall conclusion. 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.

In applying the above factors to your case we find that:

-   there has been no change of purpose for which the land was held as it is your principal place of residence;

-   no additional land was acquired and added to the original parcel of land;

-   the parcel of land was not brought into account as a business asset;

-   there was a no business plan;

-   there was no business organisation (for example, a manager, office and letterhead);

-   the level of development of the land did not go beyond what is required for approval of the subdivision, namely, providing a driveway;

-   no buildings have been erected on the land.

Further, MT 2006/1 provides examples of subdivisions of land that are not enterprises from paragraph 288. Examples 33 and 35 are considerably analogous with the fact position in this case:

Example 33

291. Ursula and Gerald live on a 2.5 hectare lot that they have owned for 30 years.

292. They decide to sell part of the land and apply to subdivide the land into two 1.25 hectare lots. The survey and subdivision are approved. They retain the subdivided lot containing their house and the other is sold.

293. Ursula and Gerald are not carrying on an enterprise and are not entitled to an ABN in respect of the subdivision as the subdivision and sale are a way of disposing of some of the land on which their home is situated. It is the mere realisation of a capital asset.

Example 35

297. Oliver and Eloise have lived on a rural property, Flat Out for the last 30 years. They live a self-sufficient lifestyle. As a result of a number of circumstances including their advancing years, Oliver's deteriorating health, growing debt and drought conditions they decide to sell.

298. Oliver and Eloise put Flat Out on the market and are unable to find any buyers. They then receive advice from the real estate agent that they may be able to sell smaller portions of it. They initially arrange for council approval to subdivide part of Flat Out into 13 lots. They undertake the minimal amount of work necessary and sell the lots. They continue to live on the remaining part of their property.

299. A few years later Oliver and Eloise decide to sell some more land to meet their increasing debt obligations. They arrange for council approval to subdivide another part of Flat Out into four lots. Again they undertake the minimal amount of work necessary to enable the lots to be subdivided and arrange for the real estate agent to sell these lots.

300. Three years later Oliver's and Eloise's personal and financial circumstances are such that they again decide to sell some more land. They arrange for further council approval to subdivide part of their remaining property into three lots. Again they undertake the minimal amount of work necessary to enable the lots to be sold and arrange for the real estate agent to sell the lots.

301. Over the years involved Oliver and Eloise have subdivided 30 % of Flat Out. They continue to live on the remaining part of their property.

302. Oliver and Eloise are not entitled to an ABN as they are not carrying on an enterprise. They are merely realising a capital asset. In this example the following factors are relevant:

·         There is no change of purpose or object with which the land is held - it has remained their home.

·         There is no coherent plan for the subdivision of the land - the subdivision has been undertaken in a piecemeal fashion as circumstances change.

·         A minimal amount of work has been undertaken in order to prepare the land for sale. There has been no building on the subdivided land. The only work undertaken was that necessary to secure approval by the council for the subdivision.

Having given consideration to the above factors, it is our view that your activities carried out in regard to the subdivision of your property and the future sales of Lot XX and Lot XX is the mere realisation of a capital asset and not the carrying on of an enterprise.

You have not met the criteria of paragraph 23-5(a) and therefore you are not required to be registered for GST pursuant to section 23-5.