Edited version of private advice

Authorisation Number: 1051742888850

Date of advice: 20 August 2020

Ruling

Subject: GST and sale of vacant land

Question

Will you have a goods and services tax (GST) liability when you sell the vacant land (property) either as it is or as 2 subdivided blocks of vacant land under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No,youwill not have a GST liability under the GST Act when you sell the property either as it is or as 2 subdivided blocks of vacant land. This is because the sale of the vacant land will not be a taxable sale under section 9-5 of the GST Act since you will not be carrying on an enterprise and you will not be required to be registered for GST when selling the vacant land.

You will need to notify the purchaser in writing that they do not have a withholding obligation when purchasing the vacant land. This can be included in the sales contract or in a separate document prior to settlement.

Relevant facts

You reside in Australia and are not registered for GST. You do not carry on any business activity in Australia.

You previously purchased a property located in Australia with the intention of building a house which would have been for your personal use.

The property you bought was a vacant land and the property currently is still a vacant land with no buildings or structures on it.

You have not used the land since you purchased it and the seller to your knowledge did not apply the margin scheme when you purchased the vacant land.

With the change to your circumstances you bought a house instead of building a house on the purchased block of land,

With the costs associated to this block of land you have been advised you would get your money back if you subdivide the land. You currently have received a provisional approval for the subdivision of the land into 2 blocks.

You are currently marketing the sale of the land as it is and as 2 blocks of land. If the only interest you get is for smaller sized blocks you will proceed to complete the subdivision as part of the contract of sale.

You will do the subdivision to meet the requirements in the approval for the subdivision. Nothing will be built on the subdivided blocks when they are for sale.

You have not been involved in any other subdivision of land and sale of land in the past.

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 9-20

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

Reasons for decision

Note: Where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in section 195-1 of the GST Act.

Detailed reasoning

You must pay the GST payable on any taxable supply that you make.

Section 9-5 of the GST Act 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 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.

In your case, you will make a supply of vacant land in Australia for consideration satisfying paragraphs 9-5(a) and (c) of the GST Act. Further, the GST-free and input tax provisions do not apply in your circumstances.

However, it is necessary to determine if the supply of the vacant land is made in the course or furtherance of an enterprise you carry on (paragraph 9-5(b) of the GST Act) and if you are required to be registered for GST (paragraph 9-5(d) of the GST Act).

Enterprise

Subsection 9-20(1) of the GST Act provides that an enterprise relevantly includes:

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.

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 (MT 2006/1) considers the meaning of carrying on an enterprise.

Paragraphs 244,259, 262 and 263 of MT 2006/1 state:

244. 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. Such transactions are of a revenue nature. However, the sale of the family home, car and other private assets are not, in the absence of other factors, adventures or concerns in the nature of trade. The fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature.

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

Isolated transactions and sales of real property

262. The question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions.

263. The issue to be decided is whether the activities are an enterprise in that they are of a revenue nature as they are considered to be activities of carrying on a business or an adventure or concern in the nature of trade (profit making undertaking or scheme) as opposed to the mere realisation of a capital asset....

We consider your sale of the vacant land as it is do not amount to an enterprise in the form of a business or in the form of an adventure or concern in the nature of trade. The sale activity is the mere realisation of a capital asset.

Where your activities will be the subdivision and sale of the two subdivided blocks, we consider it will be a 'one-off' or isolated real property transaction, and we need to consider whether the activities are the carrying on of a business or an adventure or concern in the nature of trade.

Paragraphs 264 to 269 of MT 2006/1 outline factors that indicate whether the activities undertaken for the subdivision or sale of the land are an 'adventure or concern in the nature of trade' and state:

264. The cases of Statham & Anor v. Federal Commissioner of Taxation... (Statham) and Casimaty v. FC of T... (Casimaty) provide some guidance on when activities to subdivide land amount to a business or a profit-making undertaking or scheme. In these cases, farmland 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.

265. From the Statham and Casimaty cases a list of factors can be ascertained that provide assistance in determining whether activities are a business or an adventure or concern in the nature of trade. 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;

·         borrowed funds financed the acquisition or subdivision;

·         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.

266. 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 a 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.

...

269. The Commissioner recognises that in some cases practical difficulties may arise in deciding whether the activities involved in a particular subdivision amount to an enterprise. The question is necessarily one of fact and degree. As outlined above, it requires a careful weighing of the various factors and exercising judgment in the light of decided case law and commercial experience...

Your original purpose for purchasing the vacant land was to build a house for your personal use. However due to change to your circumstances you bought a house instead of building a house on the vacant land you have purchased. Due to costs associated to the vacant land you have decided, depending on the interest receive when marketing the sale of the vacant land, to sell the vacant land as it is or subdivide the vacant land into two blocks and sell them,

You have no plan for the proposed subdivision beyond:

·         obtaining subdivision approval,

·         subdivide the land to meet the requirements in the subdivision approval,

·         arranging for the vacant blocks to be advertised and sold under contracts.

You have not undertaken a development of this type before and no buildings would be erected on the vacant land when sold.

After considering the above factors, we consider that the subdivision and sale activities do not amount to an enterprise in the form of a business or in the form of an adventure or concern in the nature of trade. The activity is the mere realisation of a capital asset.

Therefore, you do not satisfy paragraph 9-5(b) of the GST Act when you sell the vacant land as it is or when you subdivide the vacant land into 2 blocks and sell them.

Registration

Under section 23-5 of the GST Act you are required to register for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold.

As you are not considered to be carrying on an enterprise when selling the vacant land as it is or when you subdivide the vacant and sell the subdivided blocks, you are not required to be registered for GST. Paragraph 9-5(d) of the GST Act is not satisfied.

Summary

As all the requirements in section 9-5 of the GST Act are not satisfied, you are not making a taxable supply when you sell the vacant land or subdivide the vacant land and sell the two subdivided blocks. You will not have a GST liability for the sale in this instance.

Other information

GST at settlement

From 1 July 2018, most purchasers must withhold an amount from the contract price at the date of settlement and pay it directly to the ATO. The sale price is paid to the property supplier. This applies to:

·         new residential premises

·         land that could be used to build new residential property.

Suppliers must notify purchasers in writing as to whether they have a withholding obligation or not when they sell.

Suppliers must determine if they are running an enterprise. Even one-off property sales could mean they have a GST obligation.

More information on GST at settlement is available at ato.gov.au

As we have determined that you will have no GST liability when you will sell the vacant land or when you subdivide the vacant land and sell the subdivided blocks, you will need to notify the purchaser in writing that they do not have a withholding obligation and do not need to pay a withholding amount from the contract price of the property to the ATO. This can be included in the sales contract or in a separate document prior to settlement.