Edited version of private advice

Authorisation Number: 1051929340888

Date of advice: 20 December 2021

Ruling

Subject: Development and sale of new residential premises

Question

Will the supply of side B of the duplex be subject to GST once it is completed and then sold?

Answer

Yes.

This ruling applies for the following period:

20 December 2021 to 19 December 2025.

Relevant facts and circumstances

You have no Australian Business Number (ABN), are not currently registered for GST and have never been registered for GST in the past.

You entered into a contract to purchase a property in Australia (the property). No GST was included in the purchase price as the supply of the property to you was an input taxed supply of residential premises.

When you acquired the property, it contained a second-hand dwelling that had been newly updated inside and outside and that had development approval for a duplex to be built on it.

Your original intention for the property at the time of its acquisition was for your family to live in the existing dwelling that was on the property. Soon after the property purchase had settled, you and your family moved into the existing house and lived in it for some time.

You later decided to demolish the existing dwelling on the property and build a new duplex (through the existing planning permit). However, demolition of the existing house and construction of the new duplex did not commence straight away, as you had to wait for the bank to assess the loan application and approve the loan that would fund both the demolition and the construction.

The construction contract (which included demolition of the existing house) was signed after the bank had approved the loan. Demolition of the existing dwelling and construction of the new duplex commenced shortly afterwards.

You advised that the decision to build a new duplex was an investment decision; with the intent (at that time) for the new duplex being for your family to live in one side (side A) and for the other side (side B) to be rented out to generate an income stream.

Due to the pandemic the construction of the new duplex has been delayed, with completion now expected to be somewhat later than originally planned.

Since construction started, you have been assessing whether, instead of the original plan for the duplex (i.e., living in side A and renting out side B), an alternative option might be better with maximising the return on capital; with this alternative option being to:

•                sell side B;

•                reinvest the sale proceeds from the sale of side B in another bigger property for you and your family to live in; and

•                hold side A as an investment property (although you expect to first live in it).

When you made the decision to sell side B of the duplex, the decision was made upon realising that you may be able to sell one side of the duplex and get a premium on its sale due to the building being new.

To date, no sale agreement has been entered into in relation to side B of the duplex. Nor has any marketing/advertising regarding the sale of side B of the duplex yet been undertaken, as construction is still underway. Side B of the duplex has never been marketed/advertised for lease.

Relevant legislative provisions

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

Section 9-5

Section 9-20

Section 9-40

Section 23-5

Section 23-15

Division 188.

Detailed reasoning

Section 9-40 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you must pay the GST payable on any taxable supply that you make, while section 9-5 of the GST Act provides that you make a taxable supply if:

•                you make the supply for consideration

•                the supply is made in the course or furtherance of an enterprise that you carry on

•                the supply is connected with the indirect tax zone (essentially Australia), and

•                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.

The supply of side B of the new duplex (once built and then sold by you and your spouse), will clearly be for consideration. Such consideration will consist of the sale price that you and your spouse end up selling the unit for. Hence, the first requirement of a taxable supply will be met.

As the new duplex, once it is built, will be on real property (land) that is located in Australia, the third requirement of a taxable supply will also be met.

The second and fourth requirements of a taxable supply are somewhat inter-linked. This is because, where the relevant entity making the supply is not already registered for GST, it will be necessary to determine whether the relevant entity is required to be registered for GST (the fourth requirement of a taxable supply). In so doing, it will be necessary to first consider whether the relevant entity is carrying on an enterprise (one of the requirements for GST registration - refer below) before then determining whether the supply of side B of the new duplex (when it is sold) is made in the course or furtherance of an enterprise carried on by the relevant entity (second requirement of a taxable supply).

You have not sought clarification from us regarding which entity would be making the supply; you individually or the partnership entity that you are a partner in together with your spouse. You have only asked us to determine whether the supply of side B of the new duplex will be subject to GST once completed and sold. It is, however, noted that neither you, your spouse, nor the partnership entity (which is a partnership between you and your spouse) is currently registered for GST.

Regardless of whether the supply of side B of the new duplex is made by you individually or the partnership entity that you are a partner in, the answer to the question whether the supply of side B of the duplex will be subject to GST will, in the current circumstances, be the same.

It is noted that none of the provisions in the GST Act that could make a supply GST-free or input taxed will be applicable in relation to the supply (sale) of side B of the new duplex. Specifically, it is noted that side B of the duplex (once sold upon completion), will consist of the supply of new residential premises. Paragraph 40-65(2)(b) of the GST Act provides that the sale of residential premises, to the extent that they are new residential premises, will not be an input taxed supply of residential premises.

Thus, should the second and fourth requirements of a taxable supply be met along with the other two requirements of a taxable supply (which we have already determined are met), then the supply (sale) of side B of the duplex by the relevant entity would be a taxable supply and the relevant entity would be liable for GST on that supply.

In the current circumstances, we consider that the relevant entity (either you individually, or more likely the partnership entity that you are a partner in together with your spouse) would be required to be registered for GST (the fourth requirement of a taxable supply) and that the supply (sale) of side B of the new duplex by the relevant entity would be made in the course or furtherance of an enterprise carried on by the relevant entity (the second requirement of a taxable supply), for the reasons provided below.

Whether the relevant entity is required to be registered for GST

In accordance with section 23-5 of the GST Act, you are required to be registered for GST if:

(a)  you are *carrying on an *enterprise; and

(b)  your *GST turnover meets the *registration turnover threshold.

(* a term defined in the GST Act)

The relevant entity will thus be required to register for GST if it is both carrying on an enterprise and its GST turnover meets the registration turnover threshold.

Carrying on an enterprise/supply made in the course or furtherance of an enterprise

The term 'carrying on' an enterprise includes doing anything in the course of the commencement or termination of the enterprise; while the term 'enterprise' has the meaning given by section 9-20 of the GST Act (refer to section 195-1 of the GST Act).

Section 9-20 of the GST Act relevantly provides that 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.

However, subsection 9-20(2) of the GST Act contains some exclusions to the definition of enterprise. Of those exclusions, only those in paragraphs 9-20(2)(b) and 9-20(2)(c) of the GST Act could be of any relevance to your circumstances.

Paragraph 9-20(2)(b) of the GST Act provides that an enterprise does not include an activity, or series of activities, done as a private recreational pursuit or hobby. Paragraph 9-20(2)(c) of the GST Act provides that an enterprise does not include an activity, or series of activities, done by an individual or a partnership (whose members are all, or mostly, individuals) without a reasonable expectation of profit or gain.

Miscellaneous Taxation Ruling 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 guidelines on the meaning of enterprise for ABN purposes.

MT 2006/1 provides at paragraph 153 that the ABN Act does not define an 'activity, or series of activities', so in the absence of a statutory definition these terms take on their ordinary meaning. An activity is essentially an act or series of acts that an entity does, ranging from a single undertaking including a single act to groups of related activities to the entire operations of the entity.

MT 2006/1 goes on to provide at paragraph 154 that for an entity that has to carry on an enterprise to be entitled to an ABN, it is necessary to identify one activity or a series of activities that amount to an enterprise. If an entity carries on a number of activities, only one of those activities need constitute an enterprise in order for the entity to be entitled to an ABN. However, not every activity or series of activities that an entity carries on would by themselves amount to an enterprise or be activities carried on by them in an enterprise; some activities will be specifically excluded while others may not fall within the definition of enterprise.

Regarding how to determine the extent to which an activity or series of activities amounts to an enterprise, paragraph 159 of MT 2006/1 provides that whether or not an activity, or series of activities, amounts to an enterprise is a question of fact and degree having regard to all the circumstances of the case.

Paragraph 160 of MT 2006/1 provides that it is important that the relevant activity or series of activities are identified because one activity may not amount to an enterprise, but that activity taken into account with other activities may form an enterprise. All activities need to be taken into account including activities from the commencement to the termination of the enterprise.

Example 15 in MT 2006/1 discusses activities associated with the sale of real property, such as purchasing land, constructing a block of units on the land, engaging a real estate agent, and arranging for the sale of the units.

Paragraph 163 of MT 2006/1 provides that an activity such as selling an asset may not in itself amount to an enterprise, but account should also be taken of the other activities leading up to the sale to determine if the entity carried on an enterprise.

Paragraph 1 of Goods and Services Tax Determination 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? (GSTD 2006/6) provides that MT 2006/1 has equal application to the meaning of 'entity' and 'enterprise' for the purposes of the GST Act.

Given the ordinary meaning of an 'activity, or series of activities' (which is reiterated in paragraph 10 of GSTD 2006/6), an enterprise could therefore incorporate an isolated or one-off transaction such as the development and sale of real property.

Paragraph 13 of GSTD 2006/6 provides 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. However, the sale of the family home, a private car or other private assets is not, without other factors being present, an adventure or concern in the nature of trade.

Isolated transactions with a commercial flavour would thus amount to an adventure or concern in the nature of trade and be of a revenue nature.

Whether an isolated activity such as the development and sale of real property is done in the form of an adventure or concern in the nature of trade is relevantly discussed in MT 2006/1 as follows:

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

233. There is no definition of 'in the form of an adventure or concern in the nature of trade' in the ABN Act. However, the concept of 'an adventure or concern in the nature of trade' has arisen in the context of Australian and United Kingdom (UK) revenue law.

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.

240. Taxation Ruling TR 92/3 sets out the Commissioner's views of the general principles and factors that have been considered in determining whether an isolated transaction is of a revenue nature.

241. The meaning of the phrase, 'in the form of an adventure or concern in the nature of trade' has at its foundation the concept of 'an adventure or concern in the nature of trade' which is discussed above.

242. As a matter of statutory interpretation the phrase 'in the form of an adventure or concern in the nature of trade' is wider than 'an adventure or concern in the nature of trade'. However, the underlying concept of an adventure or concern in the nature of trade does not logically lend itself, in any meaningful way, to being broadened. In a practical sense, an activity is either an adventure or concern in the nature of trade or it is not.

Characteristics of trade, including the 'badges of trade'

243. Trade takes its ordinary meaning... The word 'trade' is used with its accepted English meaning: traffic by way of sale of exchange or commercial dealing... The commercial character of trade was mentioned more recently by Lord Reid in Ransom v. Higgs (1974) 1 WLR 1594. His Lordship there said: 'As an ordinary word in the English language 'trade' has or has had a variety of meanings or shades of meaning. Leaving aside obsolete or rare usage it is sometimes used to denote any mercantile operation but is commonly used to denote operations of a commercial character by which the trader provides to customers for reward some kind of goods or services (1974) 1 WLR, at p 1600'.

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.

245. The (Radcliffe) Royal Commission on the Taxation of Profits and Income (UK) in 1954 identified six badges or identifying features of trade. The United Kingdom courts have seen the 'badges of trade' as providing 'common sense guidance' in reaching a conclusion on such matters.

246. The badges of trade have also been referred to by the High Court in FCT v. Myer Emporium Ltd and more recently by the Full Federal Court in the decision in Puzey v. Federal Commissioner of Taxation.

The 'badges of trade', as mentioned in MT 2006/1, include the following:

•                the subject matter of realisation - this badge of trade considers the form and the quantity of property acquired. If the property provides either an income or personal enjoyment to the owner it is more likely to be an investment than a trading asset.

•                the length of period of ownership - a trading asset is generally dealt with or traded within a short time after acquisition.

•                the frequency or number of similar transactions - the greater the frequency of similar transactions the greater the likelihood of trade.

•                supplementary work on or in connection with the property realised - improving the property beyond preparing an asset for sale, to bring it into a more marketable condition and gain a better price suggests an element of trade.

•                the circumstances that were responsible for the realisation - 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.

•                motive - if the activities on an objective assessment have the characteristics of trade, the person's motive is not relevant. It is relevant in those cases where the evidence is not conclusive. Motive is also important in cases if there is a change in character of the asset.

•                trade v. investment assets - assets purchased with the intention of holding them for a reasonable period of time, to be held as income producing assets or to be held for the pleasure or enjoyment of the person, are more likely not to be purchased for trading purposes. Assets can change their character but cannot have a dual character at the same time.

Paragraphs 262 to 269 of MT 2006/1 specifically consider isolated or one-off real property transactions in the context of whether an enterprise is being carried on.

The issue to be decided is whether the activities 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.

A list of factors ascertained from cases assist in determining whether activities are a business or an adventure or concern in the nature of trade. If several of these factors are present it may be an indication that a business or an adventure or concern in the nature of trade is being carried on. 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.

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.

No two cases are likely to be exactly the same. The question is necessarily one of fact and degree.

Specifically, in relation to land bought with the intention of resale, paragraph 270 of MT 2006/1 provides as follows:

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.

In order to reach a proper factual assessment, it is necessary to ask what the venture was and what gave it its commercial character.

In relation to profits from isolated transactions Taxation Ruling 92/3 Income tax: whether profits on isolated transactions are income (TR 92/3) provides, at paragraphs 7 and 38, that the relevant intention or purpose is not the subjective intention or purpose of the taxpayer, rather, it is the taxpayer's intention or purpose discerned from an objective consideration of the facts and circumstances of the case.

Further, paragraphs 40 to 42 of TR 92/3 provide that it is not necessary that the intention or purpose of profit-making be the sole or dominant intention or purpose of entering into the transaction. It is sufficient if profit-making is a significant purpose. Further, if a transaction involves the sale of property, it is usually necessary that the taxpayer has the purpose of profit-making at the time of acquiring the property; however, that is not always the case (for example, if the taxpayer acquires an asset with the intention of using it for personal enjoyment but later decides to venture or commit the asset into a profit-making undertaking or scheme with the characteristics of a business operation or commercial transaction).

The following paragraphs from Goods and Services Tax Ruling 2009/4 Goods and services tax: new residential premises and adjustments for changes in extend of creditable purpose (GSTR 2009/4) also provide some guidance in relation to determining whether new residential premises are held for sale in an entity's enterprise.

Demonstrating that new residential premises are being held for sale in an entity's enterprise

44. An objective assessment of the facts and circumstances will demonstrate whether or not new residential premises are being held for the purpose of sale as part of an entity's enterprise. Such an assessment requires a weighing up of the evidence that supports a finding that the premises are being held for the purpose of sale or that the premises are being held as an investment asset or for some other purpose. There must be satisfactory evidence to support a conclusion that the premises are being held for the purpose of sale, or for some other purpose. A single piece of evidence may not be sufficient where there is other evidence which suggests a contrary purpose. In such cases all of the evidence must be considered and weighed up in reaching a decision.

47. It is considered that the period of time for which premises remain unsold or for which the premises are intended to be held by the entity is a relevant factor in determining whether the premises are being held for the purpose of sale. In particular, if the premises are intended to be sold within a short timeframe this supports a finding that the premises are being held for the purpose of sale. Alternatively, if the premises are intended to be held for a substantial period of time or in fact remain unsold for an extended period of time this may suggest that the entity is holding the premises as an investment asset or for some other purpose. This is a question of fact in each case and must be weighed up with the other available evidence.

Two further paragraphs from GSTR 2009/4 also discuss whether new residential premises are being held for the purpose of sale; they relevantly provide as follows:

39. The analysis at paragraphs 36 to 38 of this Ruling, in part, focuses on whether or not the new residential premises are being held for the purpose of sale. A distinction can be made between things that are being held for the purpose of sale as part of an enterprise being carried on by an entity, and things such as business plant and machinery used by an entity in carrying on an enterprise.

41. The concept of holding a thing for the purpose of sale as part of an enterprise is similar to holding a thing for the purpose of trade. The characteristics of trade, including the 'badges of trade', are discussed in the context of an adventure or concern in the nature of trade at paragraphs 243 to 261 of 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 discusses a number of factors which help identify whether or not an entity is engaged in trade or, rather in the context of this Ruling, holds a thing for the purpose of sale.

Registration turnover threshold

Should the relevant entity meet the first requirement for being required to be registered for GST (i.e., the requirement that the entity is carrying on an enterprise), the relevant entity would still need to meet another (the second) requirement before being required to be registered for GST. The second requirement for GST registration is that the relevant entity's GST turnover meets the registration turnover threshold.

As specified in section 23-15 of the GST Act and regulation 23-15.01 of the A new Tax System (Goods and Services Tax) Regulation 1999), the registration turnover threshold is currently $75,000 for entities other than non-profit bodies.

Subsection 188-10(1) of the GST Act provides that you have a GST turnover that meets a particular turnover threshold if:

(a)  your current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the turnover threshold; or

(b)  your projected GST turnover is at or above the turnover threshold.

The terms 'current GST turnover' and 'projected GST turnover' are defined in sections 188-15 and 188-20 of the GST Act respectively.

Put simply, an entity's current GST turnover is the sum of the values of all supplies made in a particular month plus the previous 11 months and an entity's projected GST turnover is the sum of the values of all supplies made in a particular month plus the next 11 months.

In calculating current GST turnover and projected GST turnover, the following supplies (amongst others) are not included in the calculation:

(a)  supplies that are input taxed (such as financial supplies, residential rent and the sale of residential premises which are not new residential premises);

(b)  supplies that are not for consideration (and are not taxable supplies under section 72-5 of the GST Act); and

(c)   supplies that are not made in connection with an enterprise that you carry on.

The fact that input taxed supplies are not included in the calculation of GST turnover is not relevant in relation to the future sale of side B of the new duplex, since such sale will not be an input taxed supply in any case, for reasons already given. However, this could be relevant in relation to side A of the new duplex, as the supply of residential premises by way of lease (an activity that can be an enterprise in itself) is generally an input taxed supply (refer to section 40-35 of the GST Act).

Further to the above, paragraph 188-25(a) of the GST Act states that in working our your (the relevant entity's) projected GST turnover, "disregard: (a) any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours."

In addition, paragraph 188-25(b) of the GST Act states that in working out your (the relevant entity's) projected GST turnover, "disregard: (b) any supply made, or likely to be made, by you solelyas a consequence of: (i) ceasing to carry on an enterprise; or (ii) substantially and permanently reducing the size or scale of an enterprise."

Goods and Services Tax Ruling 2001/7 Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover (GSTR 2001/7) discusses, amongst other things, the meaning of capital assets.

Paragraph 33 of GSTR 2001/7 provides that capital assets are 'radically different from assets which are turned over and bought and sold in the course of trading operations'. An asset which is acquired and used for resale in the course of carrying on an enterprise is not a capital asset for the purposes of paragraph 188-25(a) of the GST Act.

Paragraphs 34 to 36 of GSTR 2001/7 further provide as follows:

•                capital assets are to be distinguished from revenue assets. A revenue asset is an asset whose realisation is inherent in, or incidental to, the carrying on of a business.

•                if the means by which you derive income is through a disposal of an asset, the asset will be of a revenue nature rather than a capital asset, even if this disposal is a one-off transaction.

•                over the period that an asset is held by an entity, its character may change from capital to revenue or from revenue to capital.

•                for the purposes of section 188-25 of the GST Act the character of an asset must be determined at the time of expected supply.

Regarding isolated transactions and projected GST turnover in the context of whether a supply is made, or likely to be made, by way of either transfer of ownership of a capital asset, or solely as a consequence of ceasing to carry on an enterprise, paragraphs 46 and 47 of GSTR 2001/7 state as follows:

Isolated Transactions

46. An enterprise may consist of an isolated transaction or a dealing with a single asset. For example, an enterprise may consist solely of the acquisition and refurbishment of a suburban shop for resale at a profit. Where an entity engages in acquiring a single asset for resale at a profit, the activity will be an enterprise under paragraph 9-20(1)(b), because it is an activity in the form of an adventure in the nature of trade. As discussed in paragraph 35 of this Ruling, the disposal of that single asset is not the transfer of a capital asset. Consequently, that supply is not excluded from your projected GST turnover.

47. The disposal of that single asset, or the completion of that isolated transaction, is also not a transfer solely as a consequence of ceasing to carry on an enterprise. In such circumstances the enterprise ceases as a consequence of the disposal of the single asset, rather than the single asset being disposed of in consequence of the ceasing to carry on the enterprise.

The following paragraph from GSTR 2009/4 is also relevant, although it is written from the point of view of whether an acquisition will be applied for a creditable purpose:

47D. Acquisitions incorporated into partially developed/constructed new residential premises will not be applied for a creditable purpose to any extent, when the premises are being constructed exclusively for leasing purposes. However the acquisitions would not be precluded from being applied for a creditable purpose in the future if, based on an objective assessment of the facts and circumstances, the entity subsequently decides to construct the premises for the purpose of sale, or subsequent to completion of the premises, the entity commences holding the premises for the purpose of sale.

Application of the above to the facts in your case

As part of determining whether the relevant entity is liable for GST on the sale of side B of the new duplex (once it is built and thereafter sold), it is necessary to consider whether the relevant activities (i.e., those activities related to the development and sale of the property) have a commercial flavour that goes beyond the mere realisation of an investment or private asset.

As discussed in GSTR 2001/7, MT 2006/1, TR 92/3, and GSTR 2009/4 (refer above), an asset's character may change over time, such as from capital to revenue. For the purposes of section 188-25 of the GST Act, GSTR 2001/7 provides that the character of an asset must be determined at the time of expected supply, which in this case will be the settlement date of the future sale of side B of the new duplex.

Whist the evidence supports an initial rental/investment intention for side B of the duplex, the facts and circumstances of your (the relevant entity's) particular case clearly show that there was a change in intention/purpose regarding the development and sale of side B when you and your spouse decided to proceed with the alternative plan for the duplex.

As a result of the changed plan, side B of the duplex will no longer be rented as initially planned but will instead be sold once construction is completed. As the decision to sell side B of the duplex was made while construction was still ongoing, side B will never now become an investment/capital asset (under the alternative plan for the duplex) while it is owned by the relevant entity.

Side B of the duplex also will not become a private asset, as there has never been any intention for you and your family to live in that side of the duplex. You have only ever planned to live in the side A unit of the duplex. The fact that the existing dwelling on the property had been used as your family's primary residence became irrelevant once a decision was made replace it with a new duplex and upon completion of that new duplex use side B for a non-private purpose.

For completeness, the development and future sale of side B of the new duplex would also not be a hobby. This is because prior to the existing development application for the property expiring, you and your spouse decided to build a new duplex with side B of that duplex initially intended to become a rental property due to its investment potential.

Thus, as shown from the discussion above, the future supply (sale) of side B of the new duplex will not be capable of being a mere realisation of either an investment/capital asset or a private asset, as that unit will never become an investment/capital asset or a private asset prior to its disposal by the relevant entity. Instead, the future supply (sale) of side B of the new duplex will be the supply of a revenue asset.

The activities related to the development and future sale of side B of the duplex being undertaken by the relevant entity are in the form of an adventure or concern in the nature of trade and therefore an enterprise.

As previously discussed, isolated or one-off transactions that do not amount to a business (such as a single project involving the construction and sale of residential premises), can still amount to an enterprise where they have a commercial flavour and/or the characteristics of a business deal.

Hence, regardless of there being no prior history of property development by you and/or your spouse (or entities related to either of you), this does not prevent the development and sale of side B of the duplex from being an enterprise.

The decision to sell side B of the duplex was made (under the alternative plan for the duplex) upon you and your spouse realising that there was a good profit to be made from its sale due to the building being new. The circumstances behind the decision to sell were not, for example, because you and your spouse were 'forced' into selling the unit.

Although to date you and your spouse have not yourselves undertaken any of the development activities in relation to the property, you have engaged others with the necessary skills to do this on your behalf. Later, you and your spouse will undertake tasks such as arranging for the new titles in the property to be registered, as well as engaging a real estate agent plus a conveyancing expert to assist with the sale of side B of the duplex and its title transfer to the new owner.

Whilst you and your spouse have no formal business plan for the property development as such, the construction contract which was entered into with the builder for the demolition of the existing dwelling and the construction of the new duplex nonetheless provides a coherent plan of sorts and some degree of business organisation.

The level of development on the property is beyond simply subdividing a single parcel of land into two vacant lots and then doing no more than what is necessary to secure council approval for the subdivision. In this case, the existing dwelling has been demolished to make way for the construction of an entirely new building. A significant amount of money has been borrowed to fund both the demolition of the existing dwelling and the construction of the new duplex.

It is acknowledged that to date it does not appear that any interest has been claimed as an expense in relation to the property development and the property does not appear to have been brought to account as a business asset (you advised that no financial statements have been prepared in relation to the development of the duplex). However, the facts show that there was a clear change in intention for side B of the duplex, with profit making being a significant purpose (if not the sole or dominant purpose) behind the change in intention.

Having objectively looked at the facts and circumstances, taken all of the above into consideration and weighed everything up, we have concluded that an enterprise is being carried on by the relevant entity. That enterprise consists of the activities relating to the development and future sale of side B of the new duplex. It is this identified enterprise, carried on by the relevant entity, that the supply (sale) of side B of the new duplex will be made in the course or furtherance of, once construction is completed.

The relevant activities have a commercial flavour and the characteristics of a business deal. As such, the relevant entity is required to be registered for GST and the future supply (sale) of side B of the duplex will be a taxable supply on which GST will be payable. Subject to all the usual requirements for claiming input tax credits being met and the facts remaining as set out above, the relevant entity would be entitled to input tax credits on that portion of the duplex construction costs that relate to side B.

It is noted that as well as the exception to an enterprise in paragraph 9-20(2)(b) of the GST Act not being applicable, the exception in paragraph 9-20(2)(c) of the GST Act is also not applicable. Since you have advised that the decision to sell side B of the duplex was made because you and your spouse expect to get a premium on its sale (which you would then reinvest to sooner achieve your family's goal of having a larger home), there is a reasonable expectation of profit or gain to be made from the future sale of side B of the duplex.

For completeness, we also note that given that the sale price for the duplex would be expected to be in the hundreds of thousands of dollars, the GST turnover for the relevant entity would be expected to meet the GST turnover threshold of $75,000 (the other requirement, in addition to the enterprise requirement, that must be met in order for the relevant entity to be required to be registered for GST).