Edited version of private advice

Authorisation Number: 1051853866586

Date of advice: 18 June 2021

Ruling

Subject: GST and property subdivision

Question

Will the sale of your interest in the Property be subject to GST as a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999?

Answer

No.

Relevant facts and circumstances

You are not registered for GST. You inherited a share in a Property

The Property was formerly a family farm, that ceased operation at the time of transfer.

The Property is vacant land, with no buildings or structures and you have made no improvements.

The property is used for grazing to keep vegetation under control and livestock is rotated from a co-owner's property.

You have made no income from the land.

In YYYY the land tax for the Property changed from primary production to residential.

You then took steps to have a plan for subdivision developed and approved.

in YYYY, the co-owners agreed to sell the property after having a plan for sub-division developed and approved.

A joint application was lodged with neighbouring landowners.

A construction certificate was issued by the Council.

You, together with other co-owners entered into a contract of sale of land for $XX.00.

The property settled on ddmmyyyy.

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

A New Tax System (Goods and Services Tax) Act 1999 Division 188

Reasons for decision

In this reasoning, please note:

• 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 ato.gov.au
• all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act.

Section 9-40 requires you to pay GST on any taxable supply you make.

Section 9-5 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 the indirect tax zone (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.

You will make a supply of land with a development approval in place.

You will satisfy the requirements of paragraphs 9-5(a) and 9-5(c) as you will make a supply of the land in Australia for consideration. Of relevance is whether the supply was made in the course or furtherance of an enterprise and whether you are required to be registered for GST.

Enterprise

Section 9-20 provides that the term 'enterprise' includes, among other things, 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. The phrase 'carry on' in the context of an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

The definition of carry on in subsection 195-1 provides, an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

MT 2006/1 at paragraphs 122 to 139 provides further information on what activities are considered to be in the commencement of an enterprise. This can lead to a range of preliminary activities being accepted as an enterprise. These types of activities may still be considered to be commencement activities even where the enterprise does not eventuate or is conducted differently from the one originally contemplated.

The activities must be genuine business activities where, from the scale and nature of these activities it is clear that there has been serious contemplation of developing an enterprise undertaken in a commercial and business-like manner.

An adventure or concern in the nature of trade may be an isolated or one-off transaction that does not amount to a business, but which has the characteristics of a business deal.

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 provides guidance on what activities will amount to an enterprise.

Paragraph 178 refers to taxation ruling TR 97/11 and discusses the main indicators of carrying on a business and include:

•         a significant commercial activity;

•         a purpose and intention of the taxpayer to engage in commercial activity;

•         an intention to make a profit from the activity;

•         the activity is or will be profitable;

•         the recurrent or regular nature of the activity;

•         the activity is carried on in a similar manner to that of other businesses in the same or similar trade;

•         activity is systematic, organised and carried on in a businesslike manner and records are kept;

•         the activities are of a reasonable size and scale;

•         a business plan exists;

•         commercial sales of product; and

•         the entity has relevant knowledge or skill.

Based on the facts provided we do not consider the steps taken to have a plan for subdivision developed and approved, with the subsequent sale of the Property indicates a business is being carried on.

MT 2006/1 at paragraph 244 provides that 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.

Paragraph 265 provides the following factors:

•         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.

MT 2006/1 at paragraph 270 provides where land is sold that was purchased with the intention of resale at a profit (which would be ordinary income) the Commissioner considers these activities to be an enterprise. This would be so whether the land was sold as it was when it was purchased or whether it was subdivided before sale. An enterprise would be carried on in this situation because the activities are business activities or activities in the conduct of a profit-making undertaking or scheme and therefore an adventure or concern in the nature of trade.

Based on the facts provided you acquired the land in YYYY (inheritance) and sold the land in YYYY. There is no evidence that when you acquired the land you had the intention of resale at a profit.

Based on the facts provided and weighing these up against the factors listed above whilst you have taken steps to prepare the property to be sold with a plan of subdivision developed and approved, there is no history or pattern to describe this property activity has been undertaken by you on a regular and continuous basis. Nor is the manner in which you have gone about your activities suggesting these were done in a commercial or business-like manner.

On balance we consider your activities are not undertaken in the form of an adventure or concern in the nature of trade.

Further, section 23-5 of the GST Act provides that you are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold. The registration turnover threshold is currently set at $75,000.

Furthermore, section 188-10 of the GST Act provides that your GST turnover meets the registration turnover threshold of $75,000 if your projected GST turnover meets $75,000. Your projected GST turnover is calculated by adding the value of all the supplies you make or are likely to make in a particular month and in the next 11 months (excluding certain supplies such as input taxed supplies).

Section 188-25 provides that you exclude the transfer of capital assets when you calculate your projected turnover.

Paragraph 31 of GSTR 2001/7 provides commentary on what is meant by 'capital assets'. It refers to those assets that make up the 'profit yielding structure', as opposed to trading assets (revenue assets) that are turned over and bought and sold in the course of trading operations.

We consider that your land is a capital asset and that you have held this land for long period of time, not for income producing purposes, but rather a long term investment, given the circumstances in which you acquired the land in 2002.

For the reason set out above we consider that you do not meet all the requirements of section 9-5 of the GST Act.

The supply of your interest in the land at the Property will not be a taxable supply and it will not be subject to GST.