Edited version of private advice

Authorisation Number: 1051896492040

Date of advice: 10 September 2021

Ruling

Subject: GST and registration

Question

Do you need to register for GST and apply the margin scheme to your proposed sale of land (the Land) that will be subdivided from your principle place of residence (the Property)?

All legislative references are to the A New Tax System (Goods and Service Tax) Act 1999 (GST Act) unless stated otherwise.

Answer

No. Based on the circumstances provided, you do not need to register for GST. The margin scheme is therefore not applicable to your proposed sale of the Land that will be subdivided from your Property.

For further information please refer to the Reasons for Decision section.

Relevant facts and circumstances

In 20XX, you purchased the property (the Property). The Property was always intended to be used as your principal place of residence.

Your purchase of the Property was funded by a standard variable loan for owner occupation.

You are planning to subdivide the backyard area of the Property and sell it off to raise funds to pay down your loan after you received multiple recommendations from local real estate agents suggesting to build or to subdivide on the backyard area. The subdivided backyard area of the Property is referred to in this private ruling as the Land.

You plan to carry out the subdivision in a few months time.

With regard to the things or activities you have done so far in respect of your plans to subdivide and sell, you advised that you have engaged a planning consultant (town planner) and civil engineer to provide advice to see if it is possible and how much the likely costs are and to assist in running a financial feasibility test.

With regard to the things or activities that you will be doing in respect of your plans to subdivide and sell, you advised of the following:

•         Drainage rectification to existing house, landscaping, fence, driveway and all services connections.

•         You also stated that connections/cost of service connections will be avoided where possible with onus put on a potential purchaser. You also advised that you will also require marketing collateral to sell the land (images, renders, brochure, advertising budget).

With regard to other parties who you will need to engage to carry out the subdivision, you advised that you will need to engage consultants for the design, and contractors for the physical work. You stated that so far you have been advised that you will require a civil or concrete contractor, tree lopper, landscaper, consultants for the council submission and drawings and reports, marketing, and a real estate agent etc.

You stated that you have been told to expect the Land to sell for approximately $X.

You stated that previous savings will be used to fund your subdivision of the Property. You also stated that there is no new house being built, and that your intention is just to subdivide the land.

Other information

You are not registered for GST.

You have an ABN which was active between XX/XX/XXXX to XX/XX/XXXX and also between XX/XX/XXXX to present. As advised, your activities under the ABN are not related to the subdivision of the Property.

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 23-5

Reasons for decision

Section 23-5 provides that you are required to be registered if you are carrying on an enterprise and your annual turnover meets the registration turnover threshold.

Further, section 9-5 provides that you make a taxable supply if you make the supply for consideration, in the course or furtherance of an enterprise that you carry on, the supply is connected with the indirect tax zone, and you are registered, or required to be registered.

Section 188-10 concerns whether your GST turnover meets, or does not exceed, a turnover threshold. However, of importance is whether you are carrying on an enterprise and whether your proposed sale of the Land is made in the course or furtherance of an enterprise that you carry on.

In this case, you are not registered for GST. While you have an ABN which was active between XX/XX/XXXX to XX/XX/XXXX and also between XX/XX/XXXX to present, your activities under the ABN are not related to the proposed subdivision of the Property.

Enterprises

Enterprise is defined at section 9-20 which provides that, amongst others things, 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 the Commissioner' view on the meaning of an enterprise and also 'in the form of an adventure or concern in the nature of trade'. The relevant paragraphs within MT 2006/1 that discusses the meaning of these are not reproduced here. However, it is noted that those paragraphs including those that discuss 'isolated transactions and sales of real property' have been considered and taken into account against the circumstances provided in this case in deciding whether your proposed sale of the Land constitutes an enterprise.

We note that paragraph 266 of MT 2006/1 states that:

266. 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.

Having regard to your given circumstances as a whole, we are of the opinion that your activities in respect of your proposed subdivision and sale of the Land do not constitute an enterprise. As such, based on your circumstances as provided, you do not need to register for GST. The consequence of this is that your proposed sale of the Land would not be a taxable supply.

As the margin scheme is applicable to work out the GST amount on taxable supplies of real property, it will not be applicable to your proposed sale of the Land.

Additional information

The decision in this private ruling is based strictly on the circumstances you have provided.

Worth noting is that 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 an entity's activities on an objective assessment have the characteristics of trade, the entity'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.