Edited version of private advice

Authorisation Number: 1051939950167

Date of advice: 14 January 2022

Ruling

Subject: GST and land development

Question 1

Will the sale of subdivided lots by the Landowner in the circumstances described below be made in the course or furtherance of an enterprise that is carried on by the Landowner for the purpose of paragraph 9-5(b) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

The sale of the subdivided lots will be made in the course of an enterprise carried on by the partnership of the Landowner and the Developer.

Question 2

Will the Landowner be making a taxable supply under section 9-5 of the GST Act in respect of the sale of the subdivided lots, such that GST must be charged and remitted to the ATO?

Answer

The partnership of the Landowner and the Developer will be making a taxable supply under section 9-5 of the GST Act, such that GST must be charged and remitted to the ATO.

This ruling applies for the following period:

1 July 20XX - 30 June 20XX

Relevant facts and circumstances

The Land is several acres in size.

The Landowner has owned the Land for close to xx years. The Landowner acquired interest in the land in the XX's

For more than XX years the Landowner farmed the Land in partnership with the Landowner's spouse who passed away in the late 90's. Following the death of the spouse, the Landowner continued to farm the Land in partnership with their child. More recently the Landowner has retired from farming and is leasing the Land to the child who is using the Land in a farming business.

The Land was zoned rural until around 20XX when it was re-zoned to low density residential zone (LDRZ).

The Land is broadacre farmland to which no material physical improvements have been made.

In early 20XX the Landowner (at first through the child) was approached by professional land development company(Developer) to determine the Landowner's interest in the development and sale of the Land. At that time the Developer was engaged by a neighbouring landowner to subdivide and sell their land.

Following discussions with the Developer, in mid-20XX the Landowner signed a Development Agreement (DA) with the Developer, under which the Developer was appointed to procure the re-zoning of the land to low density residential zone and then subdivide and sell the land on the Landowner's behalf.

The key terms of the DA are as follows:

a. The Developer was given a timeframe to procure the rezoning of the land to residential usage through the necessary statutory authority processes.

b. Assuming that the Developer was successful in procuring the rezoning of the land to residential usage, the Developer will then proceed to subdivide and sell the land on the Landowner's behalf. In this regard, the Developer will attend to all matters necessary to effect the development and sale of the land including:

•         Applying for planning permits;

•         Consultation with authorities;

•         Carrying out construction works;

•         Engaging consultants, contractors, builders etcetera as required;

•         Marketing lots for sale and appointing sales agents;

•         Determining minimum sale price for lots; and

•         Collecting sale proceeds and distributing them to the client.

c. The Landowner will remain owner of the Land throughout the development. No title in the Land will pass to the Developer or any other entity to implement the development.

d. The Developer will be responsible for paying all development costs. It will have the right to be reimbursed these amounts from the sales proceeds only as they are received on behalf of the Landowner.

e.   The Developer will be entitled to 49% of the sale proceeds from the sale lots after the reimbursement to the Developer of its loan expenditures and the development costs it will incur.

It was submitted that the 49% distribution to the Developer is the development fee payable for its services.

The Landowner's main motivations in deciding to sign the DA and commit to the development and sale of the Land included:

•         the Landowner's age;

•         the Land being surplus to the Landowner's needs;

•         the Landowner's desire to fund their retirement;

•         the Landowner's desire to gift money to their adult children;

•         encroaching residential development of surrounding land in the area.

The Landowner's involvement in the development of the Land and subsequent sales of the subdivided lots will be entirely passive. The Developer has been engaged to project manage all aspects of the development meaning the Landowner will not have any involvement in the day-to-day decision making of the subdivision project.

The Landowner did not discuss developing the Land with any other developer/s nor had they made any attempts to sell the Land "as is". The Developer is the only developer the Landowner discussed the development of the Land with.

Pursuant to the DA, the Developer made applications to the Council to rezone the Land to low density residential zone. In mid-2019 the Land was rezoned to low density residential zone. However, the prevailing structure plan only allowed subdivision to 1-2 hectare lots, which was too large to allow a commercially viable subdivision of the Land to proceed.

More recently, a change in the structure plan was gazetted to allow subdivision of the Land into smaller 1 acre lots. This change has now opened the way for a commercially viable subdivision and sale of the Land to commence.

The change to the structure plan was implemented unilaterally by the Council, but submissions were made by the Developer in support of the change. The Landowner did not have any personal involvement in the rezoning process and /or changes to the structure plan.

The Developer's next role is to prepare an application in response to a Development Plan Overlay (DPO) which is the subject of this site. After the Council endorses the Developer's response to the DPO, a planning permit for the subdivision can be applied for. Following planning permit approval, works on the Land can commence. Aside from roads and utility services, required council works are limited to post and wire fencing to the lots and rear boundary, a footpath on each side of the roadway, and some street lighting.

The Developer has proposed that the Land will be subdivided into an estimated xx lots and will likely be completed in four (4) or more stages depending on the progress of the development and market conditions.

It is anticipated that the Landowner will enter into a limited power of attorney with the Developer that allows the Developer to enter into binding contracts of sale of subdivided lots. The Developer will engage a local real-estate agent to sell the subdivided lots. It will be the Developer signing the sale contracts under its limited power of attorney.

Each subdivided lot is estimated to sell for several hundred dollars

The Landowner has no prior history of involvement in land development activity (wither directly or indirectly).

The Landowner is not registered for GST.

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

A New Tax System (Goods and Services Tax) Act 1999 section 184-1

A New Tax System (Goods and Services Tax) Act 1999 section 188-10

A New Tax System (Goods and Services Tax) Act 1999 section 188-25

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision

In determining whether the sale of the subdivided lots will be made in the course of an enterprise for the purpose of paragraph 9-5(b) of the GST Act, it must first be determined whether the development activities leading to the sale are carried on by the Landowner alone, or jointly by the Landowner and the Developer.

Partnership carrying on a development business

Section 184-1 of the GST Act specifically includes a partnership in the definition of entity (paragraph 184-1(1)(e) of the GST Act) and excludes non-entity joint venture (subsection 184-1(1A) of the GST Act. Both 'partnership' and 'non-entity joint venture' are defined terms.

Section 195-1 of the GST Act contains relevant definitions including the following:

non-entityjointventurehas the meaning given by subsection 995-1(1) of the *ITAA 1997.

partnershiphas the meaning given by section 995-1 of the *ITAA 1997.

Section 995-1 of the ITAA 1997 contains these definitions:

non-entityjointventuremeans an arrangement that the Commissioner is satisfied is a contractual arrangement:

(a)   under which 2 or more parties undertake an economic activity that is subject to the joint control of the parties; and

(b) that is entered into to obtain individual benefits for the parties, in the form of a share of the output of the arrangement rather than joint or collective profits for all the parties.

partnershipmeans:

(a) an association of persons (other than a company or a *limited partnership) carrying on business as partners or in receipt of *ordinary income or *statutory income jointly; or

(b)    a limited partnership.

The Commissioner's view on partnerships and joint ventures are contained in various rulings including:

•         Goods and Service Tax Ruling GSTR 2003/13 Goods and services tax: general law partnerships

•         Goods and Services Tax Ruling GSTR 2004/6 Goods and services tax: tax law partnerships and co-owners of property

•         Goods and Services Tax Ruling 2004/2 Goods and services tax: What is a joint venture for GST purposes?

•         Taxation Ruling TR 94/8 Income Tax: whether business is carried on in partnership (including 'husband and wife' partnerships)

•         Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production?

GSTR 2003/13 explains at paragraph 10 that the first limb of paragraph (a) of the definition of partnership reflects the general law definition of a partnership, which is 'the relation which subsists between persons carrying on a business in common with a view of profit'. We refer to this type of partnership as a general law partnership.

The second limb of paragraph (a) of the definition of partnership includes as a partnership an association of persons (other than a company or limited partnership) 'in receipt of ordinary income or statutory income jointly'. This type of partnership is referred to as a tax law partnership.

A general law partnership is formed when persons commence carrying on business together with a view of profit under an agreement, either written or oral. The 'relation' or the 'association' is one that arises under an agreement. Under general law, a partnership is not an entity and the term 'partnership' is merely descriptive of the relationship between persons carrying on business with a view of profit.

However, the GST law specifically includes a partnership as an entity in section 184-1 of the GST Act and deems the acts of the partners to be acts of the partnership under subsection 184-5 of the GST Act:

(1)   For the avoidance of doubt, a supply, acquisition or importation made by or on behalf of a partner of a *partnership in her or her capacity as a partner:

(a)   is taken to be a supply, acquisition or importation made by the partnership; and

(b)   is not taken to be a supply, acquisition or importation made by that partner or any other partner of the partnership.

In Yacoub v Federal Commissioner of Taxation [2012] FCA 678 (Yacoub), Jagot J considered whether parties in a joint property development were a general law partnership, and therefore an entity, for GST purposes. At paragraphs 23-28 Jagot J summarised the relevant case law:

23.  "The existence of a partnership is determined by reference to the true contract and intention of the parties as appearing from all of the facts and circumstances relevant to the relationship of the parties" (Amadio Pty Ltd v Henderson (1998) 81 FCR 149 at 172).

24.  The indicia of the existence of a partnership include: - (i) a mutual interest in the carrying on of the business for the purpose of profit or gain (in this regard, it has been said that all partnerships involve a joint venture but not all joint ventures involve a partnership, for example, Whywait Pty Ltd v Davison [1997] 1 QdR 225 at 231), (ii) mutual confidence that the parties will engage in the venture for joint advantage only (for example, Birtchnell v Equity Trustees, Executors & Agency Co Ltd (1929) 42 CLR 384 at 407-408), (iii) sharing of profits and losses from the venture or a so-called community of profit and loss (Fenstonv Johnston (1940) 23 TC 29 at 34), and (iv) mutual agency in the sense that each party is a principal of the business and may bind the other (for example, Momentum Productions Pty Ltd v Lewarne (2009) 174 FCR 268; [2009] FCAFC 30 at [36]-[44] (Momentum Productions)).

25.  Statements of intention by the parties may be relevant but do not determine whether a partnership exists, as the issue is determined by reference to the "substance and reality of the transaction being adjudged to be a partnership" (Fenston v Johnston at 35-36).

26.             In United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 15-16 Dawson J said:

Perhaps in this country, the important distinction between a partnership and a joint venture is, for practical purposes, the distinction between an association of persons who engage in a common undertaking for profit and an association of those who do so in order to generate a product to be shared among the participants. Enterprises of the latter kind are common enough in the exploration for and exploitation of mineral resources and the feature which is most likely to distinguish them from partnerships is the sharing of product rather than profit.

27.  In A.R.M. Constructions Pty Ltd v Federal Commissioner of Taxation (1987) 87 ATC 4790 Yeldham J said at 4805:

I am clearly of the opinion that...there was merely a joint venture between the appellants to construct buildings, in contrast to an agreement to make profits for sharing, and it was the intention of the parties at all material times to retain the units and town houses so erected, except to the extent that sales might be necessary to repay moneys borrowed from lending institutions...In my view the parties associated together to produce a product, a building of units capable of partition between them, so that each could hereafter go their own respective ways. Their expressed intention so to do was duly manifested in what they thereafter did and achieved, and their agreement constituted in law something in the nature of a joint venture to construct the building, in contrast to an agreement to make profits for sharing, inter se. The only partnership for tax purposes related to such rental income as was received jointly before the date of the deed of partition...

28.       According to Lindley & Banks on Partnership (19th ed, Sweet & Maxwell Ltd, 2010) at 5-23:

...persons who agree to share profits and losses will normally find themselves treated as partners, whether or not they have themselves used that word. However, it is not the necessary corollary of such an agreement that each party will enjoy all the rights and privileges normally associated with partnership, e.g. a right to participate in the management of the business, to dissolve the firm, or to share in the value of goodwill on a dissolution.

Rather, the partners' rights and duties will in each case be determined by the terms of their agreement...

In concluding that the parties were in a general law partnership, Jagot J stated at paragraph 39:

...the real difficulty for the applicants remains cl 2 of the 18 July 2007 agreement and the agreement between the parties to the venture to "share equally all costs, liabilities, mortgages and proceeds derived from any sale arising from the property". By this provision the parties to the 18 July 2007 agreement placed themselves in a legal relationship by which they had: - (i) a mutual interest in the carrying on of the business for the purpose of profit or gain, (ii) mutual confidence that the parties will engage in the venture for joint advantage only, and (iii) sharing of profits and losses from the venture or a so-called community of profit and loss. As a matter of substance the parties thereby created between themselves a partnership both at general law and a tax law partnership as defined in s 995- 1 of the ITAA 1997.

The ATO view on tax law partnerships is set out in GSTR 2004/6 Goods and services tax: tax law partnerships and co-owners of property.GSTR 2004/6 provides:

19. If the 'receipt of income jointly' is from the 'association of persons' carrying on business as partners, that association of persons is a general law partnership, and not a tax law partnership.

Therefore, if the venture fits the definition of a tax law partnership and the definition of a general law partnership, it will be a general law partnership.

The indicia of a partnership are not solely determined by statements made by the parties nor on the ownership of the asset. A declaration in an agreement between the parties not to form a partnership as per clause 2.2 in the Development Agreement dated July 2015, will be ineffective if all the indicia of partnership are present.

Paragraph 20 of GSTR 2003/13 provides:

20. However, an express intention not to form a partnership, although a strong indicator that the relationship is not a partnership, will not be determinative in all cases. Even a declaration in an agreement between the parties not to form a partnership will be ineffective if all the indicia of a partnership are present. Nevertheless, such a declaration may be used to rebut inferences that could otherwise be drawn from other clauses of any agreement the parties have between themselves. If there is no written agreement, then the intention of the parties may be implied by their words and conduct.

Ownership of the legal title of an asset by only one partner is also not determinative of whether there is a general law partnership. As a partnership is not a legal entity, it, the partnership, cannot hold title to an asset. It is the partners who will have the legal ownership. This is illustrated in GSTR 2004/2, example 2 at paragraphs 56-59 where parties can be in a partnership where the land is only owned by one party.

As can be seen from the extract from Yacoub above, parties who are in an arrangement to share profits and losses will normally find themselves treated as partners. As found in Yacoub, after considering the agreement there will be a partnership where the parties have:

• a mutual interest in the carrying on of the business for the purpose of profit or gain,
• mutual confidence that the parties will engage in the venture for joint advantage only, and
• sharing of profits and losses from the venture or a so-called community of profit and loss.

The agreement entered into between the parties has the character of something more than the Landowner entering into a contract on a fee for service basis with the Developer, to develop, subdivide and sell the lots. There is no specific mechanism in this agreement for the Developer to charge the Landowner for their services. Whether this is a percentage fee based on sale proceeds of land or a direct charge for time/effort. In turn, the Landowner is not able to expense the costs (where it is a fee) against the revenues from the sale of land.

Where a Developer is acting in their own right throughout this Project, outstanding liabilities for payment of these development costs would rest with the Developer alone, being the entity that has acquired these services.

Under this arrangement, these costs are costs of the Partnership (incurred by the Developer in the capacity as partner in this partnership), and any distribution and return on respective investment is not realised until the loans and development costs are paid in full.

Rather than a fee for service arrangement, there is an enduring commercial relationship or association between the parties. Ultimately the arrangement set out in the agreement is that the Landowner is contributing the 100 acres of land and provision of a security over the land to obtain funding for the development costs, and the Developer is contributing their skill, expertise and knowledge to carry out all of the steps necessary to achieve the joint objective. In return, the Landowner and the Developer receive a respective share of 51/49 of excess proceeds after loans and development costs are paid. Whilst in some circumstances the Developer has the ultimate say, the parties work together, where they attend meetings, keep records, and only proceed if it is economically viable to do so.

In the event that a party undertakes or enters into transactions, they would be doing so in their capacity as partner in the partnership, and not in their own right. The exception to this would be those events and transactions leading up to and including the rezoning.

It is arguable as to when this partnership formed. We are of the view that it formed when it was clear the development phase was to proceed.

It is our view that the Landowner and the Developer are carrying on a business in common with a view of profit.

•         There is a purpose and intention to engage in commercial activity.

(a)  There is the intention by entering into this agreement, that both parties have come together to achieve a joint goal as expressed in clause 9.1. This clause in the agreement supports recital 3, to achieve re-zoning, subdivision, development and sale of the land.

(b)  Agreement to conduct themselves in good faith as explained at clause 13.

(c)   The association is for a minimum of 7 years

(d)  Develop the land and subdivide into 68 lots over four stages.

(e)  Engage in pre-sales of lots and other marketing

(f)    A future stage will be entered into if agreed to by both parties that is economically viable, and

(g)  There is a plan for handling funds and distributing the proceeds in a specific order

•         The activity is planned, organised and carried on in a businesslike manner, including:

(a)  The agreement itself is a sophisticated document and sets out the plan for the development.

(b)  There is conditions precedent that the land needs to be rezoned such that it is economically viable to procced to the next phase (the development phase)

(c)   Funding arrangements to meet development costs

(d)  Detailed description of what is included as development works

(e)  Engagement of contractors

(f)    Review performance for current staged development and decide whether to proceed to next stage of development - sales and costs analysis

(g)  Establishment of a bank account to hold proceeds

(h)  Preparation of accounts and providing progress reports on a monthly basis

(i)    Circumstances where a stage is not progressed or the development agreement is not extended beyond 7 years, and

(j)    How proceeds are to be distributed to pay loans, development costs, including retaining some funds for the development of next stage, prior to sharing excess proceeds to each party.

•         There is size, scale and significant commercial activity.

An agreement had been entered into to develop the land into xx lots. Whilst we do not have information on actual development costs, and funding requirements, estimated sales are $xxM. By the nature of the agreement entered into, this indicates this land development and subdivision is not insignificant.

There is requisite skill brought into the project. A development manager is appointed to carry out the works.

• The purpose of the Development Agreement provides for the parties to work together with each other for mutual interest and benefit to take commercial advantage of this development enterprise. Rather than a fee for specific services, the parties have a commercial relationship to achieve a common goal. The parties meet regularly as to the status of the development and where appropriate agree to proceed to net stage of the development.

The relationship or association between the parties will be for a period of at least x years. Their aim is to achieve a joint objective (clause 9.1) and this supports Recital (R3) in general terms as to why the parties have come together.

There is mutual interest for this development to be successful. According to the agreement, the Developer (in their own right) does not separately charge the Landowner for development costs. The parties by virtue of this agreement are working together to ensure the development is successful to the extent of maximising the value of the Land.

The parties have come together to achieve re-zoning, subdivision, development and sale of the land. There is mutual trust between the parties to achieve their objectives as expressed in the concept plan, arrange funding for development costs and borrow funds for development costs, establishment of bank account and how to distribute proceeds.

Whilst the Developer is arranging for funding to meet the development costs, it is done on behalf of both the Landowner and the Developer. The borrowing of funds for development costs is achieved by using the Developer's land as security, if necessary.

Although the Developer is 'paying' the costs, both parties are 'bearing' the costs and this clause supports this view as the Landowner is not entitled to anything unless and until the development costs have been paid.

The parties have agreed to set up a bank account to manage the proceeds of sale and/or the payment of any liabilities (loans) and development costs). This account is held in trust for both the Landowner and the Developer. The mechanism for the distribution the proceeds highlights the extent of mutual interest and confidence of the parties with respect to this commercial relationship.

Once the land has been developed and subdivided ready for sale (note there are pre-sales), the Developer and the Landowner are 'tied' together until development costs are paid and all lots sold. The costs are borne by both parties and once they are paid, they are entitled to receive their share of the proceeds. If there is excess funds, the parties may agree to withhold some lots from sale and receive separate title. The parties may also retain funds and use for the next stage of the development.

The Landowner is the legal owner of the land and the proceeds belong to the Landowner. However, in accordance with this agreement, it provides for any loans and development costs be paid first, prior to sharing the excess on a 51/49 basis in favour of the Landowner.

The following clauses contained in the agreement provide further support there is mutual interest and confidence between the parties to ensure that both parties work towards the common objective for this property development.

a.      Clause 2.4 - agreement the parties be just and faithful in all its activities and dealings with the other parties and otherwise to perform its obligations implied as well as expressed under the terms of this document.

b.      Clause 4.3.1 - Owner and developer working together to achieve most advantageous outcome with respect to rezoning

c.      Clause 8 provides for the developer entitlement to a developed lot, or a share of the profit in the circumstances where the project does not go beyond 7 years

d.      Clause 10.3 - provides for any GST recouped from the purchasers of the Lots shall be the property of the parties. Any GST amount is included in the sale price and therefore form part of the proceeds that go into this joint account.

e.      Clause 13.4 - acting in good faith - providing each party that there is a mutual interest and each party can have mutual confidence that the project will be undertaken to achieve joint objective.

• Sharing of profit

a.      Clause 7 provides that the parties are sharing in proceeds.

The clause ensures that any loans are paid first and then development costs. Unless sales proceeds are less than or equal to the value of loans and development costs, then this development will have excess funds for distribution.

The clause provides for each party to share in the proceeds on a 51/49 basis, after loans and development costs, such that it reflects their profit from the development. This amount is considered profit, given costs have been taken into account, and reflects a return of each parties contribution to this development project.

b.      Clause 8 provides for either party to request a lot or lots be withheld or retained from sale. This is an alternate form of sharing in the profits, as it is a condition that loans and development costs are met in the first instance.

c.       Clause 9 provides for the circumstance where the parties do not agree to extend this agreement beyond 7 years. In this situation the parties agree to share equally the benefits of remaining unsold lots with any necessary cash adjustment to be made.

This does do not reflect a fee for service type arrangement, but rather a sharing of profits, where there is surplus proceeds. In the event that clause 9 has effect, then the parties agree that an owelty payment (cash adjustment) made be necessary to ensure the parties have shared equally.

Whilst partnerships typically are such that they are undertaken on an ongoing basis, Jagot J stated at paragraph 42 in Yacoub:

I do not accept the applicants' submission that the short-term or isolated nature of the activity precluded it from being a partnership. In National Insurance Company of New Zealand Limited v Bray [1934] NZLR 67 at 70 Smith J saw no reason not to find a partnership in respect of an arrangement relating to the mere purchase of a single piece of land. It is not apparent to me why the nature of the venture in question in this case - the development and sale of 30 strata subdivided villas - should be seen as an indicator against the existence of a partnership. Nor is the fact that the parties may have created one legal relationship in 2005 and another in 2007. In fact, the development was carried out and completed pursuant to the arrangements between the parties as varied by the 18 July 2007 agreement.

Therefore the arrangement set out in this agreement between the Landowner and the Developer can be a partnership, even though it is a single or isolated parcel of land that is subject to development.

The circumstances set out in the development agreement is an arrangement where land is owned by one party, not both. As explained included in GSTR 2004/2 at paragraphs 56-59, the arrangement can be a partnership. Therefore the arrangement set out in this agreement between the Landowner and the Developer where the Landowner supplies the land and the Developer has no interest in the land does not prevent the arrangement being a partnership.

In summary, with reference to paragraphs 30 and 47 of GSTR 2003/13, whilst the agreement provides for 'No Partnership' at clause 2.2, based on an analysis of the Development Agreement as a whole together with the comments of Jagot J in Yacoub, we consider that the better view is that the relationship between the Landowner and the Developer are in a general law partnership. There is an association of persons (other than a company or a limited partnership) carrying on business as partners for profit making purposes as they:

• have a mutual interest in the carrying on of the property development business for the purpose of profit from the sale of the developed residential lots,
• have a mutual confidence that the parties will engage in the Project as defined for joint and mutual advantage, and
• are sharing profits and losses in line with their contribution.

The arrangement does not have appearance of just a fee for service arrangement. The parties have come together for the common purpose of developing the land into subdivided residential lots for the purpose of sale. The agreement has a start and finish date where both parties are committed and invested in the project through to completion. The structure of the agreement in relation to the development costs is such that the Developer arranges for funding these costs, and the Landowner provides security for this funding to an extent of 80% of the value of the land.

The order in which proceeds are disbursed provides that after all costs have been paid, the two parties share the proceeds on a 51/490 basis. The basis for this share is the Landowner contributes the land to the development and the Developer contributes the funding for the Project.

Question 2

Section 9-5 of the GST Act states:

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.

However, the supply is not a *taxable supply

The sale of the subdivided lots will be made for consideration. The sale will be made in the course of an enterprise carried on by the partnership of the Landowner and the Developer. The sale will be connected with Australia. Paragraphs 9-5(a) to 9-5(c) of the GST act will be satisfied,. What remains to be determined is whether the partnership will be required to register when the lots are sold.

Section 23-5 of the GST Act provides that an entity is required to be registered if:

(a)  the entity is carrying on an enterprise; and

(b)  the entity's GST turnover meets the registration turnover threshold.

Currently, the registration turnover threshold is $75,000 ($150,000 for a non-profit body).

According to subsection 188-10(1) of the GST Act, an entity's GST turnover meets a particular turnover threshold if:

(a). the entity's current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that its projected GST turnover is below the turnover threshold; or

(c)   the entity's projected GST turnover is at or above the turnover threshold.

An entity's current GST turnover at a time during a particular month is the sum of the values of all the supplies that it has made, or is likely to make, during that month and the previous 11 months.

An entity's projected GST turnover at a time during a particular month is the sum of the values of all the supplies that it has made, or is likely to make, during that month and the next 11 months.

Section 188-25 of the GST Act provides that in working out an entity's projected GST turnover, disregard:

(a)  any supply made, or are likely to be made, by the entity by way of transfer of ownership of its capital asset; and

(a)  any supply made, or are likely to be made, by the entity solely as a consequence of:

                      i.        ceasing to carry on an enterprise; or

                     ii.        substantially and permanently reducing the size or scale of an enterprise.

Generally, the term 'capital assets' refers to the profit yielding subject of an enterprise. Capital assets can include tangible assets such as the factory, shop or office, the land on which they stand, fixtures and fittings, plant, furniture, machinery and motor vehicles that are retained by the entity to produce income.

The subdivided lots are not capital assets of the partnership of the Landowner and the Developer; rather, they are revenue assets as their realisation is inherent in, or incidental to the carrying on the partnership's enterprise. The sale of the subdivided lots will not be excluded in working out the partnership's projected GST turnover under paragraph 188-25(a) of the GST Act.

Furthermore, the sale of the subdivided lots will not be made as consequence of ceasing to carry on the partnership's enterprise, or substantially and permanently reducing the size and scale of the enterprise.

The estimated sale price of each of the subdivided lots is more than $XXX; therefore, the current and projected GST turnover of the partnership at the time of sale will meet the GST registration threshold. Therefore, the partnership will be required to be registered and paragraph 9-5(d) of the GST Act will be satisfied. Consequently, the sale of the subdivided lots will be a taxable supply.