Edited version of private advice

Authorisation Number: 1051899652280

Date of advice: 14 September 2021

Ruling

Subject: GST and subdivision

Question

Is X liable for GST pursuant to section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)on the sale of X?

Answer

No.

This ruling applies for the following periods:

1 March 20XX to year ending 28 February 20XX

The scheme commences on:

1 March 202XX

Relevant facts and circumstances

You purchased a property as your home known as X. Your purchase was under one contract in X. This property comprised X.

At the time of purchase X comprised X acres. In addition, X comprised X acres. The X lots comprised a total area of X acres.

In addition, there was already a house on X. You occupied the house from X as your home (the original house).

A boundary adjustment took place in relation to X which is evidenced in Deposited Plan X dated X. Registration of Deposited Plan X created:

• X; and
• X (the Property).

X comprised X acre. It was sold in X.

The Property is made up of the residue of X. The Property comprised approximately X acres. It had the original house.

The Property comprised the original house until X, when your son completed high school. The family then moved to X. The Property continued to be held as a retreat. You and your wife planned to retire there.

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

Due to your advancing years (over X years of age then) the Property became challenging to maintain. Land tax rates were increasing. You wanted to gradually sell subdivided land in smaller parcels if opportunities arose. In X you commenced subdivision into X lots. The original house was located on one of the lots. Your intention was to keep the original house and its adjacent garden for retirement.

No professional project manager was involved in the subdivision. You are the project manager.

Works done on the Property were those required by the X. X is the operator of the X. No buildings have been erected on the subdivided lots. There are no plans for the subdivision beyond meeting X's minimum requirements.

You spent X on the subdivision over the past X years. No borrowing was required to fund this. The work was as follows:

• X
• Surveying of the land;
• Development of a Water Management Plan, and Waste Water Management Plan to deal with effluent disposal for septic systems;
• Engineering design services;
• Water supply infrastructure to the lots;
• Insurance against material damage and public liability during road construction;
• Costings for construction of road and driveways as per X;
• The purchase of concrete piping needed for earthworks associated with road construction and water dispersal;
• Formation of road and driveways and installation of retention dams;
• Purchase of road base materials used in construction of roads. Access road construction began in X;
• Soil density testing prior to concreting road;
• Formwork and concreting of road and driveways;
• Installation and supply of electricity;
• Reticulation of underground electricity and street lighting to the satisfaction of X. Electrical works began in X and concluded in X;
• Boring under driveway and installing associated cabling;
• Installation of underground power, padmount and street lighting;
• Completed trenching for services (ie water, gas and telecommunications) to each lot;
• Weed spraying prior to planting; and
• Purchase of trees and hedging plants

Apart from the above, you did not carry out any other work. None of the expenses relating to the subdivision have been claimed as business expenses.

X approved the Development Application for the X lot subdivision in X.

Stage X of the development has X. Stage X of the development has X. Lot X has the original house on it. It will be your retirement home. This X stage development was approved by X. The subdivided lots were never brought into account as business assets.

You applied for X in X as a requirement from X. X required you to provide an X for identification purposes. You have not used the X apart from meeting X requirement. You cancelled your X.

In addition, X required you to put in X on the subdivision, this required upgrading some of X's infrastructure. Due to your upgrade X reimbursed X of your costs on X. You did not otherwise receive any other payments in respect to your subdivision, nor do you expect to receive any other payments in respect to your subdivision.

You have engaged a real estate agent to sell the lots.

X from Stage 1 was advertised for sale in X. This lot does not and has not had a dwelling or structure on it. You have entered into a contract to sell this vacant lot. Settlement has not occurred.

You have not been involved in any previous subdivision or development activities. You are the Director of a company (X). X carries on a X. The X is carried on from elsewhere in X. You have no history in property construction or development.

You do not carry on any other enterprise.

Relevant legislative provisions

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

Section 9-5

Section 9-20

Paragraph 9-20(1)(a)

Paragraph 9-20(1)(b)

Section 9-40

Reasons for decision

Note: In this reasoning, unless otherwise stated:

•         all legislative references are to the GST Act

•         reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

Question

Are you (X) liable for GST pursuant to section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)on the sale of subdivided lots located at X?

Section 9-40 provides that you are liable for GST on any taxable supplies that you make.

Section 9-5 provides 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 for GST.

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

You must satisfy all the conditions set out in paragraphs (a) to (d) for your supply to be taxable. Your supply is not taxable if you fail one of the conditions.

Of relevance in this case is whether you are making the supply of the vacant subdivided lots in the course or furtherance of an enterprise that you carry on.

Enterprise

The term 'enterprise' is defined for GST purposes in section 9-20 and includes, among other things, an activity or series of activities done:

•         in the form of a business (paragraph 9-20(1)(a)) or

•         in the form of an adventure or concern in the nature of trade (paragraph 9-20(1)(b)).

The phrase 'carry on' in the context of an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

Miscellaneous Taxation Ruling MT 2006/1 (MT 2006/1) provides the Tax Office view on the meaning of 'enterprise' for the purposes of entitlement to an Australian Business Number (ABN). Goods and Services Tax Determination GSTD 2006/6 provides that the discussion in MT 2006/1 equally applies to the term 'enterprise' as used in the GST Act and can be relied on for GST purposes.

In the form of a business

Paragraphs 170 to 179 of MT 2006/1 discuss factors to consider when determining whether an activity or series of activities are done in the form of a business.

Paragraph 178 of MT 2006/1 lists indicators of carrying on a business. Some of the indicators are:

•         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.

Paragraph 179 of MT 2006/1 states that there is no single test to determine whether a business is being carried on. Whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing all the relevant indicators.

Application to your situation

Given the facts of this case, we consider that the activities you have undertaken do not display the indicators of a 'business' listed above.

In the form of an adventure or concern in the nature of trade

We now consider whether your activities are in the form of an adventure or concern in the nature of trade (paragraph 9-20(1)(b)).

Paragraph 244 of MT 2006/1 explains 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.

Paragraph 245 of MT 2006/1 refers to 'the badges of trade' with paragraphs 247 to 257 discussing the various 'badges of trade' that may be taken into account when determining whether assets have the characteristics of 'trade' and held for income producing purposes, or held as an investment asset or for personal enjoyment.

While an activity such as the selling of an asset may not of itself amount to an enterprise, account should be taken of the other activities leading up to the sale to determine if an enterprise is carried on.

Paragraph 262 of MT 2006/1 acknowledges that the question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions. Paragraph 263 states that the issue to be decided is whether the activities being conducted 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.

Paragraph 265 of MT 2006/1 refers to Statham & Anor v. Federal Commissioner of Taxation (Statham) and Casimaty v. FC of T (Casimaty). The cases have established a number of factors to assist in determining whether activities are a business or an adventure or concern in the nature of trade. These factors are as follows:

•         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.

Paragraph 266 of MT 2006/1 states that no single factor will be determinative of whether the activities are an enterprise or are the mere realisation of a capital asset.

Application to your situation

In this case, you acquired X and have used it as your home or as a retreat since that then. You propose to subdivide the Property into X lots. You intend to sell X of the vacant subdivided lots. The remaining unsold lot (ie Lot X) will be your retirement home.

A scenario similar to your situation is illustrated in paragraph 264 of MT 2006/1:

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.

You did not acquire any additional land for the purpose of the subdivision.

In addition, the subdivision of the Property was not conducted in a business-like manner as there was no 'business organisation'. The vacant subdivided lots were not brought into account as business assets. The expenses related to the subdivision were not claimed as business expenses.

You did not conduct any development on the vacant subdivided lots that was beyond the level necessary to secure council approval for the subdivision.

You did not borrow funds to finance the subdivision costs. The subdivision costs were funded by accessing existing savings.

No buildings were erected on the vacant subdivided lots.

Given the above, we do not consider your activities to constitute an adventure or concern in the nature of trade. Therefore, you do not carry on an 'enterprise' for the purposes of GST. The subdivision and sale of the X vacant subdivided lots is considered to be the mere realisation of a capital asset.

Conclusion

Your activities of subdividing land and selling the vacant subdivided lots are not done in the course or furtherance of an enterprise. As such, the sale of the vacant subdivided lots do not meet the definition of a 'taxable supply'. It follows that, you do not satisfy section 9-40. You are not liable for GST on the sale of the subdivided lots located at X.