Edited version of private advice

Authorisation Number: 1051930545240

Date of advice: 8 December 2021

Ruling

Subject: GST on the potential sale of block X

Question

Is the sale of block X a taxable supply in section 9-5 of theA New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No. There is not GST payable on the sale of block X.

This ruling applies for the following period:

1 July 20XX to 30 June 20XX

The scheme commences on:

15 November 20XX

Relevant facts and circumstances

X and X purchased the property at X in 19XX.

The property has been their main residence since 19XX.

The property has not been rented since the purchase date.

The land has been subdivided into four blocks. All four blocks were on the one development application prior to the subdivision.

Initial commencement of the work started in 2016. Earthworks for storm water, sewerage, NBN gas etc was completed on lots 1-3 at the same time over the six month period. These costs incurred were paid for from your savings or financed by a redraw on our own home loan.

Block X which is approximately X square metres was advertised for potential sale and they envisaged the sale may occur soon. Due to the position of the land and the house, block X is now referred as X.

X and X current residence after the subdivision is Block X.

X and X are not registered for GST. However, X holds an Australian Business Number (ABN).

X and X have not been involved in any previous subdivision or development activities.

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 9-40

Reasons for decision

Detailed reasoning

Note: In this reasoning, unless otherwise stated all legislative references are to the GST Act.

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)).

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 our view on the meaning of 'enterprise' for the purposes of entitlement to an Australian Business Number (ABN).

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.

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 subdivision and sale of block X does 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)) of MT 2006/1.

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 151 ALR 242 (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. You subdivided the land into four lots. You sold two of the subdivided lots and are in the process of selling block X. The remaining unsold lot (i.e. block X) will be your retirement home.

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

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. 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 block X as vacant subdivided lot 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 lot (i.e block X does not meet the definition of a 'taxable supply'.

It follows that you are not liable for GST on the sale of the subdivided lot, block X.