Edited version of private advice

Authorisation Number: 1051855456051

Date of advice: 23 June 2021

Ruling

Subject: GST and subdivision

Question

Is the sale of subdivided residential lots by you a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

All further legislative references are to the GST Act unless stated otherwise.

Answer

No, the sale by you of subdivided residential property is not a taxable supply as all the requirements of section 9-5 of the GST Act are not satisfied.

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 the Commissioner's view on the meaning of carrying on an enterprise.

MT 2006/1 provides that assets can change their character from investment which is capital in nature to trade and therefore revenue in nature (paragraphs 258 to 260). If the activities on an objective assessment have the characteristics of trade, the person's motive is not relevant (paragraph 254). The characteristics of trade are explained in paragraphs 243 to 261 and include the length of period of ownership and the frequency or number of similar transactions. In particular attention is drawn to paragraph 251 of MT 2006/1 which states:

251. The greater the frequency of similar transactions the greater the likelihood of trade.

Accordingly, if you continue to subdivide properties, those activities will need to be assessed to establish whether you are considered to be carrying on an enterprise of property development. As such, any future property sales that you are likely to make are not covered by this ruling.

Relevant facts and circumstances

You do not have an ABN or GST registration.

You and your spouse purchased a property in 20XX. The property was XXX acres in total, held on two titles that were purchased together. One lot was XX acres and the other lot was XX acres.

The XX acre lot includes a residential dwelling. You and your spouse used it as your primary residence.

You used the XX acre lot for primary production activities, with minimal income generated from these activities.

Approximately X years after acquisition, you decided to apply for approval to subdivide the XX acre lot. Your intention was to reduce the size of each block to increase the likelihood of sale.

In 20XX, you sought approval from the council for the subdivision and have since undertake the following to comply with the council's requirements:

•         You engaged a surveyor

•         You engaged contractors to connect both proposed subdivided sites with power and electricity, and paid for the costs

•         You planted XXX trees along the shared boundary of the proposed subdivided sites

•         You intend to engage Telstra to supply telecommunications to the proposed subdivided sites

•         Any purchaser/s will be required to incur costs for self-contained water supply on the subdivided sites.

Following the subdivision, the two X acre lots were given street addresses.

The lot with the residential dwelling retained the original address.

You sold the lot with the residential dwelling in April 20XX.

You have not undertaken a subdivision of property previously.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5