Edited version of private advice

Authorisation Number: 1051950118383

Date of advice: 18 February 2022

Ruling

Subject: GST and sale of land

Question

Will GST be payable by the entity on the sale of the subdivided lots of vacant land pursuant to section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

This ruling applies for the specified period.

The scheme commences on the specified date.

Relevant facts and circumstances

The entity (you) is the registered proprietor on title of the specified property situated in Australia (the property).

The property comprises land and a house on a number of lots on separate titles.

You have rented the house to tenants for almost all of the time that you have owned it and the house continues to be currently tenanted.

The configuration of the existing lots was surveyed/established in the last century. The house that was built in the last century 'straddled' two of the lots. Vehicular access to all of the land was near impossible on account of its steepness, existing council utilities and the topography to the road frontage.

The existing house sat on two lots on the property. You purchased the house on the land as a whole. At the time of purchase, you were not thinking of the land as several lots. You did not see that any of the lots could be sold at the time.

Later on, you became aware that you could do a boundary adjustment and subdivision. That would enable you to retain the house and potentially sell some vacant land. The intention was to sell some of the land to reduce the debt that you owe and for other private reasons.

You have sought and gained Council approval for the subdivision and the boundary adjustment.

No additional lots resulted from the existing number of lots, after the subdivision and boundary realignment of the property.

The activities that you have carried out for the subdivision and boundary adjustments were to satisfy the conditions set out by the relevant Council.

You will be selling vacant land. Due to impending financial constraints, you are hoping to progress with a sale of one of the subdivided lots soon.

You have not applied for further development and/or for the building of any type of dwellings or other structures on the vacant lots of land for sale.

You are currently not registered or required to be registered for the GST.

Apart from this boundary adjustment and subdivision undertaking, you do not carry on any other enterprise or business activities.

You do not intend to conduct any other business or enterprise activities in the next 12 months.

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

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

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

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

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that GST is payable on a taxable supply.

You make a taxable supply if you meet the requirements of section 9-5 of the GST Act, which 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 indirect tax zone; and

(d) you are *registered or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

(*Denotes a term defined in section 195-1 of the GST Act)

All the above requirements must be satisfied for a supply to be a taxable supply.

You are currently not registered or required to be registered for GST. Therefore, we need to determine whether you will be required to be registered for GST when you sell a subdivided lot of vacant land.

Requirement to be registered for GST

Section 23-5 of the GST Act provides that an entity is required to be registered for GST purposes if both of the following requirements are met:

•         it is carrying on an enterprise; and

•         its GST turnover meets the registration turnover threshold (which is currently $75,000 for entities other than non-profit entities).

Enterprise

The term 'carrying on an enterprise' is defined in the GST Act and includes doing anything in the course of the commencement or termination of the enterprise.

Section 9-20 of the GST Act defines 'enterprise' to include, amongst other things, an activity or series of activities done:

•         in the form of a business

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

•         on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.

The ATO view on the meaning of the term 'enterprise' is explained in detail in 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).

Goods and Services Tax Determination GSTD 2006/6 provides that the discussion in MT 2006/1 equally applies to the term 'enterprise' as used in the GST Act and can be relied on for GST purposes.

Paragraph 178 of MT 2006/1 lists a number of indicators to be considered when determining whether an activity or series of activities amount to a business.

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.

No single factor will be determinative of whether the activity or activities will constitute either a business or an adventure or concern in the nature of trade.

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.

Registration turnover threshold

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

•         your current GST turnover is at or above the registration turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the registration turnover threshold, or

•         your projected GST turnover is at or above the registration turnover threshold.

In calculating your GST turnover under Division 188 of the GST Act certain supplies are excluded. Section 188-25 provides that when calculating your projected GST turnover, you do not include any supplies made, or likely to be made by you:

•         by way of transfer of ownership of a capital asset, or

•         solely as a consequence of ceasing an enterprise or substantially and permanently reducing the size or scale of your enterprise.

Goods and Services Tax Ruling GSTR 2001/7 explains the meaning of GST turnover and the effect of section 188-25 of the GST Act on the calculation of projected GST turnover. GSTR 2001/7 is available on our website at www.ato.gov.au

On the facts provided, the requirements of section 23-5 of the GST Act will not be satisfied and you will not be required to be registered for GST at the time of your proposed sale of the identified portion of vacant land.

As you are currently not registered for GST and you will not be required to be registered for GST at the time of sale, the sale will not meet all of the requirements for a taxable supply under section 9-5 of the GST Act.

Consequently, as the sale will not be a taxable supply, GST will not be payable on the sale of the subdivided lots of vacant land that you have previously bought with the rental property as a whole.