Edited version of private advice

Authorisation Number: 1051765910499

Date of advice: 12 October 2020

Ruling

Subject: GST and subdivision of residential properties for sale

Question

Will the sale of the subdivided lots be a taxable supply in accordance with section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

This ruling applies for the following periods:

None

The scheme commences on:

None

Relevant facts and circumstances

You currently own residential properties used for both private and rental purposes.

You carry on an enterprise of renting residential premises.

You are not registered for Goods and Service Tax.

You considered reducing your property exposure and investment liabilities.

You decided to subdivide two of your properties into four lots of land for sale.

You have not undertaken any subdivision activities, or any business of land development in the past.

You do not have any plans to subdivide any property in the future.

During the subdivision activities of both properties you liaised with the project manager in relation to the quotes obtained from contractors and advised which ones you preferred to use.

You funded the subdivision of both properties using your personal savings.

In one property, you demolished one brick and tile residence and two iron sheds and removed a swimming pool. In other property, you demolished the existing house.

A development company undertook the activities in relation to the sale of the subdivided lots.

You have, and will, continue to reside in the house located on one of the properties following 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 - subsection 9-20.

Reasons for decision

You are liable to remit GST on any taxable supplies you make.

The term taxable supply is defined in section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). 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.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

The supply of subdivided residential land is not GST-free or input taxed under any provision of the GST Act.

You will make the supply of the subdivided residential land for consideration and the supply will be connected with the indirect tax zone as the land is located in Australia. However, it is necessary to ascertain whether your supply will be made in the course or furtherance of an enterprise that you carry on and whether you will be required to be registered for GST.

Carrying on an enterprise

Enterprise is defined in subsection 9-20(1) of the GST Act, which states:

An enterprise is an activity, or series of activities, done:

a) in the form of a *business; or

b) in the form of an adventure or concern in the nature of trade; or

c) on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property; or

d) .......

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) provides guidance on the meaning of 'an entity' and 'enterprise' for the purposes of the A New Tax System (Australian Business Number) Act 1999 (ABN Act).

Goods and Services Tax Determination GSTD 2006/6 (GSTD 2006/6) provides that the principles in MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the GST Act.

Paragraphs 262-302 of MT 2006/1 refer to isolated transactions and sales of real property. Paragraphs 262 - 263 of MT 2006/1 state:

262. The question of whether an entity is carrying on an enterprise often arises where there are 'one-off' 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.

Based on the facts provided, it is our view that you are not carrying on an enterprise of property development. The activities carried out by you in relation to the subdivision of both residential properties are not considered as activities of carrying on a business.

Therefore, the sale of the subdivided lots of land will not satisfy the requirements of supplies made in the course or furtherance of an enterprise under section 9-5 of the GST Act. A supply should satisfy all of the requirements of section 9-5 of the GST Act to be considered as a taxable supply.

The sale of the subdivided lots of land will not be subject to GST.