Edited version of private advice

Authorisation Number: 1051945932455

Date of advice: 18 February 2022

Ruling

Subject: GST and sale of real property

Question

Will you, ABC Company, be making a taxable supply on the sale of the property at the specified address in Australia (the Property) under section 9-5 the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) and liable for the GST payable?

Answer

No, you will not be making a taxable supply on the sale of the Property as defined in section 9-5 of the GST Act and GST will not be payable on the sale. You are neither registered nor required to be registered for GST as your GST turnover does not meet the registration turnover threshold. This is because the Commissioner determines the sale proceeds are to be disregarded pursuant to paragraph 188-25(a) of the GST Act when working out your projected GST turnover. The sale of the Property will not constitute a taxable supply unless on or prior to the settlement date of the sale of the Property, you become required to be registered for GST, or you voluntarily choose to register for GST.

This ruling applies for the following period:

Year ended 30 June YYYY to Year ended 30 June YYYY

The scheme commences on:

DD/MM/YYYY

Relevant facts and circumstances

In YYYY, you (ABC Company) purchased land being the lot at the specified address (the Property). The title folio identifier is n. The land area of the Property is n ha.

Since the acquisition of the Property, you operated a specified enterprise (the xyz enterprise) from YYYY until DD/MM/YYYY. You were registered for GST from DD/MM/YYYY to DD/MM/YYYY in relation to this enterprise.

On DD/MM/YYYY a Director's meeting was held where it was resolved to investigate subdivision opportunities of the Property for the purpose of mere realisation. The intention was not to build, but to gain and understand the hypothetical civil works, subdivision and development works that a developer or builder would require.

On DD/MM/YYYY a further Director's meeting was held resolving to continue with the agreed course from the meeting of DD/MM/YYYY not to build but to merely realise the land value. Further professional legal and accounting advice was to be sought about the assumptions underpinning the hypothetical feasibilities that a developer/potential buyer would require.

From DD/MM/YYYY you reported annual GST exclusive revenue from the farming enterprise as follows:

•                n months to 30 June YYYY: $

•                n months to 30 June YYYY: $

•                n months to DD/MM/YYYY: $

On DD/MM/YYYY you engaged A to prepare and coordinate a Development Application (DA) for submission to the relevant City Council. A number of other consultants were engaged by you and coordinated through A, to assist in the preparation of the DA:

•                Access Report - Consultant's name

•                Arborist Report - Consultant's name

•                Archaeological Report - Consultant's name

•                Architectural drawings - Consultant's name

•                BASIX Certificate - Consultant's name

•                BCA Report - Consultant's name

•                Bushfire Impact Assessment Report - Consultant's name

•                Civil Engineering/Stormwater Management Plan and Report - Consultant's name

•                Contamination Report - Consultant's name

•                Dam Dewatering Report - Consultant's name

•                Geo-environmental Report - Consultant's name

•                Flora & Fauna Report - Consultant's name

•                Landscape plans - Consultant's name

•                QS Estimate of Construction Costs - Consultant's name

•                Salinity Assessment - Consultant's name

•                Statement of Environmental Effects - Consultant's name

•                Survey and Sub-Division Plan - Consultant's name

•                Traffic Report - Consultant's name

•                Waste Management Plan - Consultant's name

Your reasons for preparing the DA:

•                Without preparing and gaining approval of a DA, both buyer and seller are just 'guessing' as to the lands real worth. Achieving the DA provided certainty of the site's realisable yield and removed time and construction risk associated with the development.

•                Your buyer base would be broadened to include medium-large builder/developers - with whom your negotiating influence was more comparative. Without it, the property would ordinarily only have been attractive to a smaller group of major/institutional developers who had the resources to hold and plan site.

•                Further, the Property was zoned R3 and consequently has a higher realisable density than properties more commonly zoned R2. Not all builders can build to R3 density as it requires Residential Flat Buildings (RFB) of 3 or more storeys. So the number of buyers is typically fewer.

•                The DA was designed to assist the eventual developer/builder finance and visualise the development. The DA consisted of a combination of saleable house lots, Townhouse lots and RFB lots. This enabled the potential buyer to stage the development, generate revenue from early house lot sales which would then help fund the later Townhouse and RFB stages.

•                Achieving DA approval reduced construction risk. Only when the masterplan, subdivision plan, engineering, civil and servicing requirements were completed and approved - could a detailed schedule of works and costs be forecasted.

•                Obtaining DA approval reduced development risk to a potential buyer. De-risking the development reduced the number of unknowns and reduced the 'fat' or "cost contingency" interested parties built into their due diligence and compressed the timeline to realising their return - effectively reducing financing cost and increasing the value of the site.

•                A further motivation to gaining DA approval was the looming deadline to which Section 94 Contributions were to become 'uncapped'. At the time of commencing the DA, you had a window to achieve DA Approval by DD/MM/YYYY. If not achieved, contributions levied per block would become 'uncapped', significantly reducing the value of the property to the tune of $. Once the DA was gained, contributions levied remained constant for a period of n years (with the exception of CPI), giving you time to find the right buyer to gain Construction Certificate (CC) and finance for the development. The CC is more detailed plan of the development and is required before works can commence. Given you had no intention to develop the site yourselves, you had no need to seek CC.

•                Once DA was achieved, you were able to secure bids within the value range you felt was fair for the site. A few months later an Option deal was agreed.

The relevant City Council issued a Notice of Determination of a Development Application dated DD/MM/YYYY - Determination Number n.

In DD/MM/YYYY you were approached by B who intended to purchase the Property before the end of YYYY.

On DD/MM/YYYY you entered into a Put and Call Option agreement (Option Deed) with B with the Call Option expiry date of DD/MM/YYYY.

The Option Deed provides for the following:

•                Purchase price $ plus GST, if any

•                Security deposit payments totalling $:

• $ (less Due Diligence fee) - payable DD/MM/YYYY (Due Diligence expiry date)
• $ payable DD/MM/YYYY
• $ payable DD/MM/YYYY
• $ payable DD/MM/YYYY
• (see clause n of Special Conditions of Sale Contract which amends clause n and acknowledges the Purchaser has already paid the $ 'security deposit' and the call option fee and both amounts form part of the Deposit)

•                Call option expiry date DD/MM/YYYY

•                Call option fee $

•                Due Diligence fee $ payable DD/MM/YYYY (clause n)

•                If the Call Option Fee is paid to the Vendor before the Due Diligence Expiry Date the parties agree to be bound by the terms of the Option Deed and the Due Diligence Fee shall form part of the Security Deposit payable by the Purchaser to the Vendor pursuant to the terms of the Option Deed (clause n).

•                Due Diligence expiry date DD/MM/YYYY

An unsigned and undated copy of the Contract for the sale and purchase of land 2019 edition (Sale Contract) includes the following details:

Vendor : A

Purchase price: $

Deposit: $

Balance: $

Date for completion: DD/MM/YYYY

Land: Part Lot of the Property

Being a lot to be created in an unregistered plan of subdivision of lot n in Deposited Plan No. n ...PART Folio Identifier n

Improvements: Vacant possession; other: Vacant Land with cattle fencing, gates and perimeter fencing and a dam (Special Condition n)

Purchaser: B

The section relating to GST was not completed

The Special Conditions to the Sale Contract provide the following definitions:

Development Application means the application made by the Vendor to the relevant Authority, being the relevant City Council and known as n generally being the proposed development including the following works:

(1)          Earthworks and tree removal to make the site suitable for the residential development;

(2)          Dewatering of the existing dam;

(3)          Torrens title subdivision for n residential lots;

(4)          Construction of n townhouses (multi-dwelling housing) with internal pedestrian path network and integrated landscaping;

(5)          Construction of n residential flat buildings across Lot n, containing n apartments and n parking spaces across n levels of basement parking;

(6)          Civil works including construction of a new local road network comprising; and

(7)          N local roads, n laneways and associated landscaping

as amended from time to time before completion

Development Consent means the Notice of Determination of a Development Application dated DD/MM/YYYY from the relevant City Council and being known as Determination Number n

Clause n of the Sale Contract, as amended by clause n of the Special Conditions to the Sale Contract, states:

•                The parties acknowledge and agree that:

•                the purchaser has paid, and the vendor has received the Call Option Fee prior to the contract date; and

•                the purchaser has paid, and the vendor has received the Security Deposit prior to the contract date;

•                the Call Option Fee forms part of the deposit payable under this contract; and

•                the Security Deposit forms part of the deposit payable under this contract

You will not carry out any works on the Property as required pursuant to the Development Approval and/or Development Consent.

During the negotiation period but prior to the execution of the Option Deed you decided to sell your remaining cattle.

•                This was done because without the Property you did not intend to operate the xyz enterprise and you considered that it would be necessary to part with the stock of the enterprise.

•                On DD/MM/YYYY the enterprise assets were sold for $. It was for this reason that the sale figure for the n months to DD/MM/YYYY was high when compared to the n previous financial periods.

•                From DD/MM/YYYY you no longer have any enterprise stock. You have ceased your xyz enterprise and did not expect to make any further sales.

You are not carrying on any other enterprise or enterprises and do not expect any further income from any enterprise. You cancelled your GST registration on DD/MM/YYYY.

You have not undertaken any other property dealings. This is your only property.

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 9-40

A New Tax System (Goods and Services Tax) Act 1999 Section 23-5

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

A New Tax System (Goods and Services Tax) Act 1999 Division 38

A New Tax System (Goods and Services Tax) Act 1999 Division 40

A New Tax System (Goods and Services Tax) Act 1999 Subsection 9-20(1)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 188-10(1)