Edited version of private advice

Authorisation Number: 1051955220248

Date of advice: 23 May 2022

Ruling

Subject: Income tax and GST consequences of property subdivision and sale

Question 1

Will the proceeds from the subdivision and sale of the property be assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) as a result of carrying on a business of property development, involving the sale of land as trading stock?

Answer

No.

Question 2

Will the proceeds from the subdivision and sale of the property be assessable under sections 6-5 (for pre-CGT land) or 15-15 (for post CGT land) of the ITAA 1997 as an isolated commercial profit-making transaction?

Answer

No.

Question 3

Will the profit from the subdivision and sale of the property be assessable under the capital gains tax provisions as a mere realisation of a capital gains tax asset?

Answer

Yes

Question 4

Are you making a taxable supply when you sell the lots created from your property?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

The scheme commences on:

1 July 20AA

Relevant facts and circumstances

You are over retirement age

You have approximately a small block of farming land which you intended to subdivide into approximately X lots for individual sale.

The land consists of X parcels, one was acquired pre-CGT and the remaining were acquired post-CGT has been farmed up until viability become an issue and you wanted to retire.

The land was initially held jointly with your spouse, but you become sole owner due to some personal events.

The land is directly across the road from existing residential houses.

Your retirement was due mainly to the lack of viability of continuing to farm your land. This was precipitated by the local council restricting your land use due to proximity to existing residential land.

Due to the above, you explored the option of having the land rezoned to residential in order to subdivide the land and realise the value of the asset. The land was cleared and has not been farmed since.

You anticipate being involved at a minimal level in the subdivision by merely arranging relevant contractors to undertake the works involved to meet the minimum local council requirements for approval. This includes basic utilities such as telecommunications, electricity, roads along with town planners, solicitors and the like.

In relation to the minimum local council requirements, you advised the Project Manager is working through these items with the local authorities (Council, Roads, utilities providers).

This project is at the very early stages - subdivision drawings have been made. The Project Manager and Real Estate Agent have been engaged.

The property was re-zoned to residential by the local council.

The estimated cost of the subdivision is approximately $XX. Costings and quotes are currently being sought by the Project Manager.

Costs are currently proposed to be financed by bank finance. No finance application has been made at this stage. Once estimated costings are known, funding sources, both internal and external, will be examined.

You intend to finance your retirement with the sales of the lots.

You are not registered for GST and have never been so registered.

You have no prior property development experience. You have not been approached by developers.

The expected sale price of the unsubdivided property is approximately $YY million. You have not made any efforts to sell the property as a single lot.

You are unsure how long it will take to finish the development, but it is estimated to take approximately 18 to 24 months; but this is subject to change as other variables may change.

You do not intend to keep any of the lots and at this point do not have any firm idea how long it will take to sell the property.

You have not acquired any land to further the subdivision, nor have you engaged in any land swaps.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 70-10

Income Tax Assessment Act 1997 Section 102-5

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 108-5

Income Tax Assessment Act 1997 Section 118-20

Income Tax Assessment Act 1997 Section 995-1

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 Subsection 9-20(1).

A New Tax System (Goods and Services Tax) Act 1999 Subsection 9-20(2).

Taxation Administration Act 1953, Schedule 1, Section 14-250.

Reasons for decision

Summary

On the facts provided, the Commissioner is satisfied that the subdivision of the property and subsequent sale of the subdivided lots is not the carrying on of a business of property development but is the mere realisation of part of an asset (the property) and will not be assessable income under sections 6-5 or 15-15 of the Income Tax Assessment Act 1997 (ITAA 1997) as a result of a profit-making undertaking or plan. As a portion of the sale will be of pre-CGT assets, any capital gain you make on the disposal of that portion of the lots will be disregarded under subsection 104-10(5) of the ITAA 1997. However, this treatment does not apply to the portion of the lots acquired post 20 September 1985 and to any capital improvements on the subdivided lots that are treated as separate CGT assets as a result of section 108-70 of the ITAA 1997.

Taxation treatment of land subdivisions

Broadly, there are three ways proceeds from a land sub-division can be treated for taxation purposes:

(1)   As assessable income under section 6-5 of the ITAA 1997, being ordinary income, you earn as a result of carrying on a business of property development.

(2)   The net profit may be included as assessable income under either sections 6-5 or section 15-15 of the ITAA 1997, being a profit made from a profit-making undertaking or plan.

(3)   Under the CGT rules in Part 3-1 and Part 3-3 of the ITAA 1997, on the basis that the disposal of the subdivided lots is the mere realisation of a capital asset. Where the subdivided lots are pre-CGT assets, any capital gain or loss made on their disposal being disregarded subsection under subsection 104-10(5) of the ITAA. This means any gain made will not be included in a net capital gain that is included in your assessable income under section 102-5 of the ITAA 1997. However, this treatment does not apply to any capital improvements on the subdivided lots that are treated as separate CGT assets as a result of section 108-70 of the ITAA 1997. If section 108-70 applies you may make a capital gain or loss on the disposal of the capital improvement.

Income

Section 6-5 of the ITAA 1997 provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during an income year. Ordinary income includes income from carrying on a business.

Profits or gains arising from the carrying on or carrying out of a profit-making undertaking or plan may also be included in assessable income of a taxpayer under as ordinary income under either sections 6-5 or 15-15 of the ITAA 1997.

On the other hand, the mere realisation of a capital asset is not assessable as ordinary income, and any gain or loss on the disposal will be subject the capital gains tax rules in Part 3-1 and 3-3 of the ITAA 1997.

Section 995-1 of the ITAA 1997 defines 'business' as including any profession, trade, employment, vocation or calling. It does not include occupation as an employee.

Are you carrying on a business of property development?

Guidance on whether a taxpayer is carrying on a business is found in Taxation Ruling TR 97/11, which sets out the following indicators:

•                does the person carrying on the activity have an intention to carry on a business and make a profit from the activity.

•                whether the activity is or will be profitable.

•                whether the activity has a significant commercial purpose or character.

•                whether there is repetition and regularity of the activity.

•                whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit.

•                whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business.

•                the size, scale and permanency of the activity; and

•                whether the activity is better described as a hobby, a form of recreation or a sporting activity.

No one indicator will be decisive in determining that a business is being carried on. Whether a business is being carried on depends on the overall impression gained' after considering all the relevant factors in relation to the activity as a whole.

On the facts provided, the overall impression gained is that you will are not carrying on a business of property development. Crucially, in coming to this view, the facts disclose that:

•                objectively, your intent in in subdividing and selling part of the property, is driven by personal reasons to retire and the local council making the land unviable for farming and not by an intention to carry on a business of property development and sale for profit. This is because:

−        the local council has restricted your use of the land due to proximity to existing residential land.

−        the subdivision and sale of the property is being driven by personal reasons - your inability to farm the property and your desire to retire; and

−        the works on the land involve no more than is necessary to affect the subdivision and sale of the subdivided lots.

•                While the activity should make a profit and may be considered to have a commercial flavour, your motivation for undertaking the subdivision and sale of your land is driven by personal reasons and its unviability as farming land.

•                The activity will be a one-off - you have never undertaken any property development activities previously and do not intend to do so in the future.

•                The size and scale of the activity is at the smaller end.

•                While the minimum council requirements are quite substantial, and despite it involving a significant amount of finance and the fact it will be conducted in a somewhat organised and informed manner, your motivation in subdividing and selling the property is not for commercial reasons.

•                You did not acquire the land for profit through development but farmed the land for over X years until it was not viable to do so.

These considerations support a view that viewed as a whole, what you are doing is no more than is necessary to sell off the property that you can no longer farm and for your retirement, rather than carrying on a business of property development, consistent with the decision in Casimaty v FC of T 97 ATC 5135.

As the Commissioner is satisfied you are not carrying on a business of property development, any gains made on the sale of the subdivided blocks will not be assessable as ordinary income under section 6-5 of the ITAA 1997 as income from carrying on a business.

As you are not carrying on a business, the trading stock rules in Division 70 of the ITAA 1997 do not apply to you. The subdivided lots will therefore not be trading stock within the meaning of subsection 70-10(1) of the ITAA 1997 which defines it to mean as 'anything produced, manufactured or acquired that is held for purposes of manufacture, sale or exchange in the ordinary course of business and livestock'.

Isolated business transactions

Profits arising from an isolated transaction as a result of entering into a profit-making undertaking or plan will generally be ordinary income under sections 6-5 (for pre-CGT land) or 15-15 (for post CGT land) of the ITAA 1997, (FC of T v. Myer Emporium Ltd 1987 163 CLR 199; 87 ATC 4363; 18 ATR 693 (Myer Emporium)).

Taxation Ruling TR 92/3 - Income tax: whether profits on isolated transactions (TR 92/3) discusses the application of the principles outlined in the Myer Emporium case and provides guidance in determining whether profits from isolated transactions are ordinary income and therefore assessable under sections 6-5 or 15-15 of the ITAA 1997. It refers to isolated transactions' as:

•                those transactions outside the ordinary course of business of a taxpayer carrying on a business, and

•                those transactions entered into by non-business taxpayers.

TR 92/3 notes that in accordance with the principle set out in Myer Emporium that profits from an isolated transaction will be income when:

•                the intention or purpose in entering into the transaction was to make a profit or gain, and

•                the transaction was entered into, and the profit was made, in the course of carrying on a business or in carrying out a business operation or commercial transaction.

Application to your circumstances

For the reasons discussed above and below in the GST discussion, the Commissioner is satisfied that as your proposed sale and sub-division activity of the property does not have a profit-making purpose. You are disposing of the land due to it being unviable for farming. Therefore, any gain you might make from the sale of one or more of the sub-divided lots will not be included in your assessable income under either sections 6-5 or 15-15 of the ITAA 1997.

Conclusion

The proceeds are therefore not ordinary income and not assessable under either sections 6-5 or 15-15 of the ITAA 1997. The proceeds will be a mere realisation of capital assets, which will fall for consideration under the CGT provisions in Part 3-1 of the ITAA 1997.

Sale of subdivided land acquired before 20 September 1985 (pre-CGT land)

Land, or an interest in land, is a CGT asset under section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997).

The sale of the land is a disposal which gives rise to CGT event A1 (subsection 104-10(2) of the ITAA 1997). You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act, event or by operation of law.

When CGT event A1 happens to a CGT asset which was acquired before 20 September 1985, any capital gain or capital loss you make will be disregarded (subsection 104-10(5) of the ITAA 1997).

With respect to the change of the title on the property in 1991 when you became sole owner, a CGT Event occurred when you acquired your spouse's share of the property. However, subsection 126-5(6) of the ITAA 1997 applies so that the share of the property transferred to you maintained its pre-CGT status.

Taxation Determination TD 7 Capital Gains: What are the CGT consequences of sub-dividing pre-CGT land? confirms that where pre-CGT land is sub-divided after 19 September 1985 the land will maintain its pre-CGT acquisition date because no CGT event has happened. Section 112-25 of the ITAA 1997 provides that the subdivision of the land is not itself a CGT event.

You can disregard any capital gain or loss from a CGT event A1 occurring if the CGT asset was acquired prior to 20 September 1985.

Therefore, as a portion of the subdivided lots were acquired prior to 20 September 1985, you can disregard any capital gain or loss made on the sale of that portion of the subdivided lots.

Sale of subdivided land acquired after 19 September 1985 (post-CGT land) and capital improvements

However, the disregarding of the capital gain or loss will not apply to the portion of the subdivided lots were acquired after 19 September 1985. Nor will it apply to capital improvements on the pre-CGT portion of sub-divided lots if subsections 108-70(2) or 108-70(3) of the ITAA 1997 deems them be separate CGT assets. (see below regarding apportioning consideration and cost base between pre- and post-CGT)

With regards to the post-CGT land, CGT Event A1 will happen when you dispose of the subdivided lots (subsection 104-10(1) of the ITAA 1997). Broadly the CGT provisions include in your assessable income any assessable gain or loss made when a CGT event happens to a CGT asset that you own.

When a CGT asset (the original asset) is split into two or more assets (the new assets), such as when land is subdivided, the subdivision of the land into subdivided blocks is not a CGT event. Each of the new assets are viewed as having been acquired at the same time as the original asset was acquired.

A CGT event A1 happens when you dispose of each lot (CGT asset).

You will make a capital gain if the capital proceeds from the disposal of each lot is more than the cost base of that lot. You will make a capital loss of those capital proceeds are less than the reduced cost base of the lot.

Capital improvements

Capital improvements made to the lots, including to pre-CGT land, are also subject to the CGT provisions. This may include roads, power supply, and water/sewerage you are required to constructed on the subdivided lots after 20 September 1985, unless construction of the improvement commenced prior to 20 September 1985 or under a contract entered into before that date.

Subsection 108-70(3) may apply to deem related capital improvements on a subdivided lot to be a single separate CGT asset if the total of their cost bases at the time a CGT event occurs (here disposal of the subdivided lots) exceeds both:

•                the improvement threshold ($156,784 in 2021/2022); and

•                5% of the capital proceeds from the sale of the subdivided lot.

Similarly, subsection 108-70(2) may apply to deem unrelated capital improvements on a subdivided lot to be a separate CGT asset if its cost base at the time a CGT event occurs (here disposal of the subdivided lots) exceeds both:

•                the improvement threshold ($156,784 in 2021/2022); and

•                5% of the capital proceeds from the sale of the subdivided lot.

If either subsection 108-70(2) or 108-70(3) applies to your situation to deem capital improvements on the subdivided lots to be separate CGT assets, there may be CGT consequences. If this is the case, there are special rules for determining the capital proceeds you are taken to have received in respect of their sale: see section 116-40 of the ITAA 1997.

However, whether either subsection 108-70(2) or 108-70(3) of the ITAA 1997 applies to any capital improvements you will construct on the subdivided lots cannot be conclusively determined until the subdivided lots are sold.

Apportioning consideration received and cost base of pre- and post-CGT lots

Taxation Determination TD 9 Capital Gains: How do you apportion consideration received on the disposal of a composite asset? (TD 9) acknowledges that there is no statutory formula for apportioning the consideration received on the disposal of an asset over the parts that are deemed to be separate assets. TD 9 states that it is not mandatory that taxpayers obtain an independent valuation for the purposes of apportioning the consideration received on disposal; however, taxpayers who choose to do their own apportionments need to be in a position to justify the estimates they make.

The Commissioner will accept any reasonable method of apportioning the capital proceeds received, such as on an area basis or relative market value basis (Taxation Determination TD 97/3 Income tax: capital gains: if a parcel of land acquired after 19 September 1985 is subdivided into lots ('blocks'), do Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 treat a disposal of a block of the subdivided land as the disposal of part of an asset (the original land parcel) or the disposal of an asset in its own right (the subdivided block)? (TD 97/3)).

The consideration received by you in respect of the disposal of the lots should be apportioned between the pre-CGT and post-CGT portions of the property disposed of. The apportionment should be made on a fair and reasonable basis, such as on an area basis or relative market value basis.

Likewise, elements of the cost base should be apportioned on a reasonable basis as per section 112-25 of the ITAA 1997 and TD 97/3.

Goods and Services Tax (GST)

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) requires you to pay GST on any taxable supply you make.

Section 9-5 of the GST Act provides that you make a taxable supply if:

a) you make the supply for consideration

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

c) the supply is connected with the indirect tax zone (Australia), 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.

Based on the facts provided, there is no prospect that the supplies of the property will be GST-free, or input taxed as you ceased farming and it is assumed that you are not making a sale of any residential premises.

You currently hold a small parcel of land which you will subdivide into lots. Each lot will be vacant residential zoned land which you advised you want to sell to fund your retirement. The sale of the lots will amount to supplies. You will therefore satisfy the requirements of paragraphs 9-5(a) and 9-5(c) as you will make a supply of the subdivided lots of land in Australia for consideration.

In order for the sale of the property in the form of the lots to be taxable supplies, they must meet all of abovementioned conditions of a taxable supply under section 9-5. This leaves two issues for consideration:

•                whether the sales of the vacant lots are being made in the course or furtherance of an enterprise that you carry on, and if so

•                as you are not currently registered for GST, whether you are required to be registered for GST.

Enterprise

The term 'enterprise' is defined in subsection 9-20(1) to include, among other things, an activity or series of activities, done:

•                in the form of a business, or

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

Assessment must be made to determine if the act of subdividing the property amounts to an enterprise of dealing with the property either as a series of activities in the form of a business or in the form of an adventure in the nature of trade where the frequency of transactions is low or sporadic.

The Commissioner in Miscellaneous Taxation Ruling MT 2006/1 (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 provides guidance on the meaning of the term 'enterprise' for GST purposes.

According to MT 2006/1, a business generally includes a trade that is engaged in on a regular or continuous basis, while 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. Isolated or one-off transactions will fall into this category.

In the form of a business

The use of the words 'in the form of' before 'business' or 'an adventure or concern in the nature of trade' has the effect of extending the meaning of enterprise beyond entities carrying on a business or an adventure or concern in the nature of trade. Despite this, the focus is still on making an assessment of the factors indicating a business.

Whilst there is no single test of whether a business is being carried on, Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? (TR 97/11), provides the main indicators of carrying on a business. These indicators include:

•                a significant commercial activity.

•                the purpose and intention of the taxpayer in engaging in the activity.

•                an intention to make a profit from the activity.

•                the activity is or will be profitable.

•                repetition and regularity of activity.

•                the activity is organised and carried on in a businesslike manner to that of other businesses in the same or similar trade.

•                activity is systematic, organised and carried on in a businesslike manner and records are kept.

•                the activities are of a reasonable size and scale.

•                a business plan exists.

•                commercial sales of product; and

•                the entity has relevant knowledge or skill.

These factors in turn are derived from a number of common law authorities spanning a number of jurisdictions but importantly approved by the High Court of Australia in matters including FCT v Whitfords Beach Pty Ltd (1968) 120 CLR 191 (Whitfords Beach), Federal Commissioner of Taxation v. Williams (1972) 127 CLR 226, and Casimaty v FCT 97 ATC 5135 (Casimaty). A leading case considering isolated transactions is FC of T v. The Myer Emporium Ltd (1987) 163 CLR 199 (Myer). The principles in this case, amongst others, were picked up and followed in Taxation Ruling TR 92/3 Income tax: whether profits on isolated transactions are income (TR 92/3). These principles are considered later in these reasons.

These cases indicate that the question whether a business is being carried on is a question of fact and the conclusion generally depends on weighing up all the relevant factors set out above. Considering your arrangement, you acquired the property with the intention of holding it long term for use as a farm. This indicates that when acquired, you did not have the intention to acquire and sell at a profit.

The facts also indicate that you continued to operate the property as a farm for approximately X years. You only ceased this activity due to changes on the boundaries of your property. Cessation of farming activities is not indicative of a profit motive per se.

In terms of assessing the scale of your subdivision activity, it is not enough that there be a large land area changing hands without more.

In Casimaty, the land was subdivided into a total of 80 lots which were developed in eight separate stages involving internal roadworks. The Federal Court per Ryan J considered that the profits from the subdivision and sale were capital receipts and not ordinary income.

Volume of land sales alone is not necessarily evidence of intention to make a profit. You have only a single stage subdivision. This reflects low repetition and small-scale activity. The subdivision itself is quite straightforward in that it does not go beyond the subdivision. There is no parkland, ponds or other amenities seen in larger complex developments.

Your facts are further analogous to the facts in Casimaty as Mr Casimaty was a farmer who decided to sell blocks of his land as he was motivated by something other than pursuit of profit. In his case it was debt. The land was held for a long period of time and he did very little of the subdivision work. The Federal Court held in that case he was merely selling the asset of the farm in an enterprising way as his motivation was not profit. We consider it highly relevant that you are motivated to sell due to viability issues preventing farming on the land.

On balance, we consider the abovementioned factors do not indicate you are conducting the subdivision in the form of a business or as a profit-making undertaking or scheme. It is not particularly large scale and you do not have a business plan as such, but you have retained a town planner to conduct the steps required to meet the development approval conditions. At this stage you have not decided on the way you will finance the works required by local council. Of some relevance is the fact that you do not have experience in developing the land.

An adventure in the nature of trade

Paragraph 13 of Goods and Services Determination GSTD 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? 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. Isolated transactions with a commercial flavour are included in this category. Such transactions are of a revenue nature and will more likely amount to an enterprise.

As the transaction volume may be described as low, we also need to consider the extended definition of enterprise and whether these activities fall in the form of an adventure or concern in the nature of trade. MT 2006/1 provides guidance on the meaning of this expression.

Paragraphs 262 to 302 of MT 2006/1 specifically consider isolated transactions and sales of real property. Paragraph 263 of MT 2006/1 states that the issue to be decided is whether the activities are an enterprise, in that they are of a revenue nature, as opposed to the mere realisation of a capital asset.

Paragraph 6 in TR 92/3 provides that whether a profit from an isolated transaction is income depends very much on the circumstances of the case.

Paragraph in 13 TR 92/3 provides that:

13. Some matters which may be relevant in considering whether an isolated transaction amounts to a business operation or commercial transaction are the following:

(a)   the nature of the entity undertaking the operation or transaction

(b)   the nature and scale of other activities undertaken by the taxpayer

(c)   the amount of money involved in the operation or transaction and the magnitude of the profit sought or obtained

(d)   the nature, scale and complexity of the operation or transaction

(e)   the manner in which the operation or transaction was entered into or carried out

(f)    the nature of any connection between the relevant taxpayer and any other party to the operation or transaction

(g)   if the transaction involves the acquisition and disposal of property, the nature of that property, and

(h)   the timing of the transaction or the various steps in the transaction.

Considering these factors:

•                you are acting as an individual.

•                you are a retiree utilising assistance from consultants.

•                up until a couple of years ago you operated a farming enterprise on the property.

•                since then you have cleared the land and retired from farming

•                the property is going towards funding your retirement.

•                you are operating on a small scale and with minimal funding.

•                the arrangement is not complex

•                the nature of the property is that it was not acquired with profit in mind but rather to live there and operate as a farm.

MT 2006/1 also discusses isolated transactions and sales of real property and at paragraph 265, it presents a list of factors which, if present, may be an indication that a business or an adventure or concern in the nature of trade is being carried on. Those factors are:

•                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.

Again, these factors must be considered as a whole to assess the isolated nature of the activities to determine whether they may amount to an enterprise as a profit-making undertaking or scheme.

The facts indicate that you have changed your use of the property. It was a farming enterprise, but you have since retired after ceasing that enterprise. These events point to you merely divesting the asset.

In considering where in the spectrum your case fits, example 34 from MT 2006/1 is of relevance:

Example 34

294. A number of years ago Elsie and Karin purchased some acreage on which to keep their horses, which they rode on weekends. Karin now accepts a job overseas and they decide to sell the land.

295. They put the land on the market with little success. The local real estate agent then advises that it would be easier to sell the land if it was subdivided into smaller lots. They arrange for a development application to be lodged with the local council and obtain approval to subdivide the land into nine lots. Elsie and Karin arrange for the land to be surveyed. The land has a road running along its boundary and has some existing services such as electricity. Only minimal activity is required to subdivide the land.

296. Elsie and Karin are not entitled to an ABN. The sale is not considered to be an enterprise and is the mere realisation of a capital asset.

Additionally, you have not done much in terms of supplementary work. You have engaged someone to arrange the works required to bring the property to saleable condition but only to the minimum standard that council requires.

There are no other land parcels being adjoined to yours, you do not operate as a property developer as you have never done this before and have no future plans.

You will borrow funds to advance the subdivision of the property, but you have not claimed interest as an expense and you have only done what you needed to do to get council approval. In McCorkell v Commissioner of Taxation 1998 AATA 562 the taxpayer borrowed money to conduct subdivision activities. In that case, the existence of borrowed funds did not mean the taxpayer's activities amounted to a profit-making undertaking or scheme - the Court was satisfied that the taxpayer was merely realising a capital asset.

GST Conclusion

After weighing up all of the information, we consider that you are not carrying on an enterprise of subdividing the land and the facts viewed as a whole indicate that you are selling the property to provide you with the best outcome in realising the asset for your retirement.

As you are not making supplies in the course of your enterprise, you are not required to be registered for GST and the sales of the lots are not taxable supplies.

Additionally, you do not have any obligation to provide notice to any prospective purchaser under section 14-250 of Schedule 1 of the Taxation Administration Act 1953 as the recipient will not be in receipt of a taxable supply of potential residential land.