Edited version of private advice

Authorisation Number: 1051917854568

Date of advice: 2 December 2021

Ruling

Subject: GST and sale of real property

Question

Will GST be payable on the sale of the Vacant Lots which are subdivided from the property located in Australia (the Property)?

Answer

No.

GST will not be payable on the sale of the Vacant Lots because the sale will not be a taxable supply.

For a sale to be a taxable supply all the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) must be satisfied.

In your case, the sale of the Vacant Lots will be for consideration and connected with Australia, hence paragraphs 9-5(a) and 9-5(c) of the GST Act will be satisfied. However, the requirements of paragraphs 9-5(b) and 9-5(d) will not be satisfied because:

• the sale will be a mere realisation of an investment/capital asset and hence, will not be made in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b) of the GST Act) and
• you are neither registered nor will be required to be registered for GST (paragraph 9-5(d) of the GST Act).

Additional information

A vendor of residential premises and potential residential land must give a written notice to the purchaser before making the supply. The notice must state whether the purchaser has a GST withholding obligation in relation to the supply.

This requirement applies to all vendors of residential premises and potential residential land, not only those who are registered or required to be registered for GST.

For further information, refer to our website www.ato.gov.au and search GST at settlement.

Relevant facts

A, B, C and D (jointly referred to as 'You') are the joint owners of the Property.

You inherited the Property from a family member who had gained council approval to subdivide the farmland into a number of allotments comprising small holding lots and a single residue lot.

The Property previously owned by the deceased family member was a family farm used for cattle farming. The subdivision was initiated a number of years ago to fund the purchase of an adjacent property.

After inheriting the Property, no improvements or commercial activities were undertaken on the land.

Located on the Property is a house which is leased. The tenants only have access to a small area around the house, which is fenced off. The house has been continually leased since you inherited the Property. The current lease will expire next year. A real estate agent manages the leasing of the house. Rental income is banked into and rental expenses paid out of a joint account.

After holding the Property for a number of years, you have now decided to undertake works necessary to comply with the requirements of the original conditions of consent to subdivide the Property and sell the small holding lots to realise the maximum potential value of the Property.

Being small rural lots, the provision of services is limited to access, electricity, and telephone supply. As electricity and telephone services were pre-existing and running parallel to the boundary of the main road minimal work is required to provide these services.

Under the conditions of consent the access to the lots is via an internal driveway as only one access point is permitted off the main road and a corresponding upgrade of the main road across the frontage of the subdivision is required. The internal driveway and the road works have all been completed.

The funds required to undertake the necessary road works and other development costs have been from each of you. No external finance has been used.

The lots will be sold privately as there is ongoing strong demand for small rural allotments. However, this does not preclude real estate agents and other parties from introducing potential buyers.

You provided a diagram showing the plan of subdivision:

You provided a copy of the Notification of Development Application from the Council for a number of lots subdivision including road construction.

You retained the services of a Consultant to meet council requirements. The Consultant did all the paperwork and you arranged for quotes and engaged contractors for any construction work needed.

The lots created from the subdivision includes a residual lot which contains the house.

To date you have incurred over $X in development costs with expected future costs of over $X.

You all helped in managing the development activities, obtaining quotes from contractors and entering into contracts. The development costs have been equally funded by each of you.

You expect the development activities to be completed by the end of this year.

None of you have previously undertaken land development activities and currently none of you have an intention of engaging in land development activities in the future.

You are retaining the residual lot which contains the existing house. You intend to keep as much of the land in the family and pass on to the next generation.

After being approached by an agent, you sold one lot, although the sale has not yet been finalised.

Each of the Vacant Lots is expected to sell for over $X.

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.

Income Tax Assessment Act 1997 section 995-1.