Edited version of private advice

Authorisation Number: 1051790975304

Date of advice: 15 December 2020

Ruling

Subject: GST and property

Question

Is X liable for goods and services tax (GST) on the sale of x?

Answer

No.

This ruling applies for the following period: XX March 20XX to XX March 20XX

The scheme commences on: XX March 20XX

Relevant facts and circumstances

You (X) are not registered for goods and services tax (GST).

In 20XX you purchased a property at A (the Property) for approximately $X. There was a house on the Property when you purchased it in 20XX.

Your relative provided a deposit of approximately $X to assist with the purchase of the Property.

When the Property was purchased it had no development application. It was one large block.

In 20XX you began discussions with town planners regarding a development application to subdivide it into x blocks.

In 20XX the development application and subdivision were approved. The town planner had recommended that the development approval could be extended when it was near the expiry date.

The reason you put forward a development application was so that you could subdivide the block and have your family reside in close proximity. There was the potential for your relative to build on one lot and live there in their retirement. The other lot could be used as your main residence. The remaining two lots could either be your sibling's residence or for future children.

The Property was acquired in your name only. You moved into it immediately and made it your main residence.

You lived in the Property as your main residence from 20XX until 20XX.

You were made redundant from your Australian job. It was hard to find another job in City X. You felt it was a good opportunity and you wanted to broaden your skills. After you left City X, the Property was rented to an independent party.

You returned to Australia in 20XX.

As there was a tenant in the Property you could not move back into it. You continued leasing it for a recurring income stream.

You purchased another property in State X as tenants in common with your friend. This became your main residence. The address of the property is E.

In 20XX you renewed the development application on the Property for another x years. It was approved around June 20XX.

You have been trying to sell the Property as one parcel with the development application since 20XX. There had been X potential deals. But the X potential purchasers were not able to complete the sale.

You sold your XX% share in the E property in 20XX. You then moved to City Y.

A court order was received and the tenant was evicted in 20XX.

You had to clear the site. You completed clearing the site in 20XX. It became a vacant lot.

You applied for a Plan of Subdivision around 20XX.

You had been unsuccessful in selling the Property as one parcel. Therefore, you were advised that it would be more attractive to sell individual lots that are smaller. The smaller lots would be more affordable to a potential purchaser. You were of a similar view.

While the subdivision work was taking place in 20XX you advertised the subdivided lots for sale. However, there was no interest.

You completed the subdivision into x lots in x. The addresses of the lots are:

•                     A; and

•                     B; and

•                     C; and

•                     D.

The lots are of equal size and value when vacant.

A was sold to your friend's sibling. You sold it at slightly below market value. It settled in 20XX. GST was not included in the sale price.

You had difficulty selling the other lots.

C was sold in 20XX. GST was not included in the sale price.

The lots are in a low socio-economic suburb. There are many older homes in the suburb. You thought that putting an old relocatable home on one lot might make it more saleable.

A relocatable home was placed on D.

The prorated purchase price attributable to D is $X. The prorated subdivision costs attributable to D are approximately $X. The purchase cost of the relocatable house, its removal, connection to utilities and renovation came to approximately $X. Therefore, the total cost of the land and house at D comes to $X.

However, the market value of the land is approximately $X. You did not place the relocatable house on the land pursuant to a profit making undertaking or scheme. You merely wanted to make it more saleable. It is more profitable for you to sell D, as vacant land, if you could find a buyer.

You have been trying to sell D for the past X months. There has been no interest at $X. You expect $X to be a more realistic selling price. D is still being marketed for sale.

You intend to move back to State X.

You intend to build on B. You will use it as your main residence. You are also seeking a ruling on the future sale of B at a time when it remains your main residence.

You have not previously undertaken any property development activities.

You do not carry on any other enterprises.

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 paragraph 9-20(1)(b)

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

Reasons for decision

In this ruling:

•                     unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

•                     all terms marked by an *asterisk are defined terms in the GST Act

•                     all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on ato.gov.au

Section 9-40 provides that GST is payable on any taxable supply that you make.

Section 9-5 states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with the indirect tax zone; and

(d) 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 A, B, C and D is not GST-free nor input taxed under the GST Act.

For a supply to be taxable you need to satisfy all the paragraphs in 9-5. In your case the critical paragraph is whether your supplies of A, B, C and D are made in the course or furtherance of an enterprise that you carry on. If you do not satisfy paragraph 9-5(b) then your supply would not be a taxable supply.

Enterprise

Paragraph 9-20(1)(b) of the GST Act provides that an enterprise includes, an activity, or series of activities done, in the form of an adventure or concern in the nature of trade.

Paragraph 9-20(2)(c) of the GST Act provides that an enterprise does not include an activity, or series of activities done, by an individual, without the reasonable expectation of profit or gain.

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) the Commissioner explains when an entity is carrying on an enterprise.

Paragraph 263 of MT 2006/1 explains that 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). This is in contrast to the mere realisation of a capital asset.

Paragraph 266 of MT 2006/1 states:

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.

A, B, and C

Paragraph 264 of MT 2006/1 states:

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, 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.

We are of the view, after considering all the relevant factors, that the supply of A, B, and C is the mere realisation of a capital asset. The supply is not, an activity or series of activities done, in the form of an adventure or concern in the nature of trade. Your supply of A, B, and C does not constitute an enterprise.

D

Based on the facts provided, the activities leading up to and including the supply of this property do not have a reasonable expectation of profit or gain. Your overall plan at the time of acquisition was to acquire a property for the benefit of your extended family. When your circumstances changed, you had to take a different approach. The information provided as to costs incurred equal $X to date and the indicative market price may reach $X, however you have lowered your original price to entice a buyer. We note that a reason for including a transportable house on this lot was an attempt to make the property more saleable. In our view the activities in relation to D were not undertaken to make a profit or done in a business manner. The activities associated with D are excluded from the definition of enterprise.

Therefore, you do not satisfy paragraph 9-5(b). Given you will not meet all the elements of section 9-5, your supplies will not be taxable supplies.

Accordingly, you are not liable for GST on the supply of A, B. C and D.