Edited version of private advice

Authorisation Number: 1051748474741

Date of advice: 2 September 2020

Ruling

Subject: GST and sale of real property

Question

Is GST payable on the sale of the vacant blocks of land which are to be subdivided from the Property located in Australia (the Vacant Lots)?

Answer

No.

GST is payable on any taxable supply that an entity makes. The sale of real property is a taxable supply if the supply satisfies all the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

You are not making a taxable supply under section 9-5 of the GST Act when you sell the Vacant Lots. Although the sale of the Vacant Lots is for consideration and is connected with Australia and hence satisfies paragraphs 9-5(a) and 9-5(c) of the GST Act, the requirements of paragraphs 9-5(b) and 9-5(d) are not satisfied. This is because:

·         the sale is a mere realisation of a private asset and hence, is not made in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b) of the GST Act), and

·         you are neither registered nor required to be registered for GST (paragraph 9-5(d) of the GST Act).

Consequently, GST is not payable on the sale of the Vacant Lots.

Relevant facts

You are the owner of the property located in Australia (the Property).

You purchased the vacant land a number of years ago. At the time of purchase, the land was zoned non-urban with primary land use of dwelling large house site. Your family home was built on the land shortly after the purchase of the land. The purchase of the land was funded by the sale of your residence at that time and the construction of the house was funded by a bank loan.

The Property has been your principle place of residence since the purchase and you still reside there.

In recent years, the neighbouring properties have been developed into smaller residential lots as part of an expanding urban sprawl.

You currently have health issues and are unable to maintain the Property. You want to help transition and fund your retirement through the proposed subdivision of the Property. You intend to continue to live on the block that contains your house, without the need to maintain the large yard.

You recently applied to Council for approval to subdivide a number of blocks of land off the Property. You received the decision notice for the proposed development.

You provided a copy of the proposed subdivision plan which lists the subdivided lots and their areas.

You intend to use consultants and contractors to perform the subdivision activities. Site works have commenced and all works are being undertaken by contractors.

You provided a list of the budget estimates for cost of subdivision.

You will draw funds from your superannuation and borrow from friends and family.

The large parcels of land will be sold and nothing will be constructed on the land other than a concrete easement for access.

All works will be completed in a few months and Plan Sealing should be out by the end of the year.

You intend to advertise the Vacant Lots for sale through local real estate agents and expect the Vacant Lots to be sold for over $XXX each.

You have no prior experience in property development and have not subdivided properties in the past. You will not acquire any additional land to add to the original part of the land and will not build anything on the land or perform any works beyond the minimum amount necessary to satisfy the development approval conditions.

You have no formal business plan or timeline for completing the subdivision works and selling the subdivided lots. You have no business organisation for the subdivision. There is no office, no secretary and no letterhead in relation to the subdivision activities.

You have not claimed any expenses in relation to the subdivision as deduction for income tax purposes. You are not registered for GST and have not claimed any input tax credits in relation the subdivision activities.

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 9-40.

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