Edited version of private advice

Authorisation Number: 1051911828515

Date of advice: 19 October 2021

Ruling

Subject: GST and subdivision and sale of vacant land

Question

Will you be carrying on an enterprise under section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when selling the two lots of vacant land registered as Lot 11 and Lot 12 to the purchaser?

Answer

No. You will not be carrying on an enterprise under section 9-20 of the GST Act whenselling Lot 11 and Lot 12 to the purchaser. The sale will not be subject to GST.

You will need to notify the purchaser in writing that they do not have a withholding obligation and do not need to pay a withholding amount from the contract price of the property to the Australian Taxation Office (ATO) when purchasing Lots11 and 12. This can be included in the sale contract or in a separate document prior to settlement.

Relevant facts

Individual X works for his own company and individual Y is a mobile lender for a bank. X and Y do not have an Australian business number (ABN) and are not registered for the goods and services tax (GST).

In 20XX X and Y (you) jointly entered into a contract with a vendor to purchase three unregistered vacant blocks of land as one block of vacant land for $xxx. You paid GST on the purchase.

You purchased the vacant land with the intention of selling your current and build on a new house on the vacant land for owner occupied purposes.

You have a house with deck and pool and 6 bay sheds built on the land and moved to your new home in July 20XX. You did not carry out any activity on the remaining land where the house was not built on.

No infrastructure such as piping and sewerage or earthworks was undertaken during the time of your ownership as your intention was to purchase the land and build a home and not to develop it.

You took a residual home loan to purchase the land. You reduced the residual home loan when you sold your other residence and increased it again to build the house and sheds.

In 20XX you did obtain a DA for a subdivision of 19 lots on the land which the council approved and put a covenant over. However due to lack of experience in this area you decided not to continue with this plan as this was not what you wanted to do and instead continue to enjoy your current lifestyle.

After the impact of the bushfires in your area in 20XX X lost a significant forestry contract. This contract was a substantial amount of X's income and as a result of the loss of income you have decided to split your land into 3 lots. No DA was required to split the land into 3 lots. You had to complete some forms obtain lots and street numbers.

The only work that has been completed on the land was repairs to the boundary fences and entrance to each lot. This was done by a subcontractor and no money was borrowed to create the two lots for sale.

The new three lots are registered as followed:

• Lot 10 (your residential home)
• Lot 11 (lot for sale)
• Lot 12 (lot for sale)

You keep Lot 10 for yourself as your home is on this lot and will sell the other two lots. The sale of the two lots will give you security while X tries to manage his financial loss.

You have received an offer for the sale of Lots 11 and 12 from one buyer. You have accepted the offer, but no contracts have been exchanged.

You do not own any other property.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-20

Reasons for decision

Note: Where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in section 195-1 of the GST Act.

Detailed reasoning

Under subsection 9-20(1) of the GST Act an enterprise is defined as an activity or series of activities which includes:

• 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).

In the form of a business

The activities you have undertaken regarding the subdivision of your land into three lots and the subsequent sale of Lots 11 and 12 are not considered to be done in the form of a business; and thus, is not an enterprise as defined in paragraph 9-20(1)(a) of the GST Act.

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

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 the meaning of enterprise for the purposes of entitlement to an ABN. Goods and Services Tax Determination GSTD 2006/6 Goods and services tax: does MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999? 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.

The following paragraphs in MT 2006/1 are extracted for your information:

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

...

234. Ordinarily, the term 'business' would encompass trade engaged in, on a regular or continuous basis. However, 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.

244. 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.

The length of period of ownership

249. A trading asset is generally dealt with or traded within a short time after acquisition.

The frequency or number of similar transactions

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

253. Trade involves operations of a commercial character. As assets can be sold for reasons other than trade, the circumstances behind the sale need to be considered. For example, a quick resale may have occurred as a result of sudden financial difficulties.

Isolated transactions and sales of real property

262. The question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions.

Land bought with the intention of resale

270. In isolated transactions, 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.¹¹¹

Example 33

291. Ursula and Gerald live on a 2.5 hectare lot that they have owned for 30 years.

292. They decide to sell part of the land and apply to subdivide the land into two 1.25 hectare lots. The survey and subdivision are approved. They retain the subdivided lot containing their house and the other is sold.

293. Ursula and Gerald are not carrying on an enterprise and are not entitled to an ABN in respect of the subdivision as the subdivision and sale are a way of disposing of some of the land on which their home is situated. It is the mere realisation of a capital asset.

Your case

Before the subdivision, you have held the property continuously as your primary residence from the time you moved into the new home you have constructed in July 20XX after acquiring the vacant land in December 201XX.

You decided to subdivide your land into three Lots when X's business was affected with the loss of contracts due to the impact of the bushfire in your area in 20XX.

After the subdivision was done, you retain Lot 10 (land on which you have your primary residence) and will sell Lots 11 and 12 to provide you with security while X tries to manage his financial loss and replace income he has lost.

The length of time you had held the relevant property was for your private and domestic purposes rather than that of a quick turnaround for profit, which did not demonstrate the characteristics of a business deal nor an adventure or concern in the nature of trade.

You have not carried on development of any property for the purpose of sale or lease or other purposes.

Accordingly, we consider the subdivision of your property and the proposed sale of the subdivided Lots 11 and 12 will be a one-off isolated transaction undertaken by you as a way of disposing of some of the land on which your home is situated, similar to the situation described in example 33 of MT 2006/1 and would be considered the mere realisation of a capital asset.

After weighing up all the relevant factors of your circumstances including the above factors, we have concluded the activities of the subdivision of your land and future sale of the subdivided Lots 11 and 12 will not amount to an enterprise in the form of an adventure or concern in the nature of trade for GST purposes. That would mean paragraph 9-5(b) of the GST Act will not be satisfied and the sale of Lots 11 and 12 will not be a taxable supply. GST will not be payable on the sale.

GST at settlement

From 1 July 2018, purchasers of residential properties may be required to withhold an amount from the contract price and pay it directly to the ATO. The remainder of the sale price is paid to the property supplier. This potentially applies to:

• New residential premises
• Land that could be used to build residential buildings

Suppliers must notify purchasers in writing as to whether they have a withholding obligation or not when they sell (subject to certain exceptions).

Suppliers must determine if they are running an enterprise. Even a one-off property sale could mean they have a GST obligation.

More information on GST at settlement is available at ato.gov.au

As we have determined that you will have no GST liability when you will sell Lots11 and 12, you will need to notify the purchaser in writing that they do not have a withholding obligation and do not need to pay a withholding amount from the contract price of the vacant land to the ATO. This can be included in the sale contract or in a separate document prior to settlement.