Edited version of private advice

Authorisation Number: 1051970806220

Date of advice: 24 June 2022

Ruling

Subject: Reliance on a previous indirect tax private ruling

Question

Under subsection 357-60(2) of Schedule 1 to the Taxation Administration Act 1953 (TAA), can you continue to rely on the private ruling issued to you dated 20XX, with Authorisation number ##, such that you are not liable to any GST on the sale of subdivided lots from the real property situated in Australia?

Answer

Yes, you may continue to rely on the private ruling issued to you on 20XX as you have relied on the ruling (and not acted contrary to it), the scheme ruled on has not materially changed and the ruling still applies to you. To the extent you relied, and continue to rely, on the private ruling, the Commissioner is bound by subsection 357-60(1) of Schedule 1 to the TAA to treat your supplies of subdivided lots from the real property situated in Australia as not being subject to GST.

This ruling applies for the following period:

From the tax period commencing 1 January 20XX until the date of any subsequent ruling provided in replacement of the previous 20XX GST private ruling.

The scheme commences on:

20XX

Relevant facts and circumstances

X and Y (You) previously applied for a goods and services tax (GST) private ruling on or about 20XX.

In response to your application, the Commissioner issued you a GST Private Ruling dated 20XX under authorisation number XX (the 20XX Ruling).

The 20XX private ruling application set out a scheme or arrangement related to a proposed property subdivision and sale in conjunction with a property developer, Z (the Developer). The scheme identified the following facts:

•         The Applicants each own a 50% interest in the Land which has an area of ## hectares and is used for agricultural and residential purposes.

•         Y and her late husband purchased the Land decades ago.

•         X, is Y's relative and has owned a 50% share in the Land since 19XX when UU passed away.

•         X carries on a primary production business in partnership with his wife and son on the Land and another larger holding (partnership). Their ABN is ##

•         The partnership does not pay X and Y fees for the use of the Land in its enterprise and the Land is not recognised as an asset in the partnership's financial accounts.

•         X had previously run a primary production business and was registered for GST as a sole trader (ABN ##). The Land was not used in this business.

•         X cancelled his registration in 20XX.

•         X currently lives in a house on the Land.

•         Y owns a house on the Land which is currently rented out.

•         The Land is located near an area where substantial residential development is occurring. Because of the increasing urbanisation of the area the X and Y formed the view several years ago that the continuing use of the Land would not be viable and they have been considering options to sell or otherwise realise the value of the Land.

•         In 20XX, X and Y were approached by the Developer with a proposal to develop a section of the Land. The details of the proposal are contained in a development plan.

•         It is proposed that the Developer will develop approximately ## hectares to create approximately ### lots in stages. It is anticipate [sic] the development will be completed toward the end of 20XX.

•         The current projections are that the sale of lots will generate total sales revenue of approximately $## million and an estimated return to X and Y of $## million.

•         The Applicants have signed a property development agreement with the Developer dated 20XX (Agreement). Under the Agreement the Developer will:

(a)          carry out all of the development activities (clause #);

(b)          obtain all permits and approvals (clause #);

(c)           manage the day to day running of the development (clause #);

(d)          meet all the costs of the development (subclause #);

(e)          prepare the final development plan (clause #); and

(f)            be solely responsible for marketing strategies for the sale of the lots (clause ##).

A list of services that will be provided by the Developer is found in CCC to the Agreement.

The Agreement also provides that:

(a)          the Developer accepts responsibility for all insurances that are needed;

(b)          X and Y will grant all rights in respect of the Land that the Developer require to undertake the development;

(c)           the land around X and Y's current dwellings will be excised and title will be transferred to Y (for their home) and X (for their home) - subject to council approval;

(d)          the Developer will be paid:

(i)        a management fee equal to #% of the total proceeds from the sale of the lots.

(ii)       an estimated management fee determined by the Developer (payable monthly) with adjustments made to this estimate once the development is completed (clause #); and

(iii)      a development fee, which will be determined as a proportion of the proceeds from the sale of the lots.

On 20XX, the Commissioner issued private rulings to X and Y advising that the proceeds from the sale of the subdivided land constituted the mere realisation of a capital asset (CGT Private Ruling).

On 20XX you provided the following facts in support of a private ruling application:

•         X and Y (you) each own a 50% interest in the Land also described as the Property.

•         The Property consists of around ## hectares of land and has historically been used for agriculture.

•         X acquired his interest in the Property from BB in 19XX. Y acquired her interest in the Property pre 2000.

•         Up until 20XX, X, with their relative carried on a business in partnership on the Property as well as on other property (Partnership A).

•         On 20XX, X and Y commenced an enterprise (Partnership B) on the Property. It is currently registered for GST.

•         The Property is used by Partnership B.

•         Both Partnership A and Partnership B have not paid X and Y for the use of the Property in their respective enterprises. The Property has never been recognised in either partnership's accounts.

•         X had previously carried on a primary production business as a sole trader.

(a) Up until 20XX, X was registered for GST.

(b) X's ABN was cancelled on 20XX.

•         The Property has never been used in this business.

•         X and Y have never been registered for GST.

•         X currently lives in a house on the Property (X's House). There is also another house on the Property (Y's House). This was where Y lived until around the year 20XX and is now used as a rental property.

•         The Property is located near an area where substantial residential development has been occurring. Because of the increasing urbanisation of the area, X formed the view several years ago that the continued use of the Property for agricultural purposes would not be viable and therefore, have been considering options to sell or otherwise realise the value of the Property.

•         Because of these issues, Partnership B has only used the Property in agriculture.

•         In 20XX, you were approached by the Developer with a proposal to develop a section of the Property.

•         the Developer proposed to develop approximately ## hectares to create approximately ### lots in stages. It was originally anticipated that the subdivision would be completed towards the end of 20XX.

•         the Developer's projections at that time were that the sales of lots would return gross sales revenue of approximately $### million and an estimated return to X and Y of $## million.

•         You signed a property development agreement with the Developer dated 21 February 20XX (Development Agreement).

Annexure # to your private ruling application is a copy of the Development Agreement.

Under the Development Agreement, the Developer was responsible for:

(a) carrying out all the development activities (clause ##);

(b) obtaining all permits and approvals (clause ##);

(c) managing the day to day running of the development (clause ##);

(d) meeting all the costs of the development (subclause ##);

(e) preparing the final development plan (clause ##); and

(f) marketing strategies for the sales of the lots (clause ##).

A comprehensive list of the Developer's services is in the Development Agreement.

The Development Agreement also provides that:

(a) the Developer accepted responsibility for all insurances that are needed;

(b) X and Y granted all rights in respect of the Property that the Developer required to undertake the development;

(c) the Property around the respective dwellings will be excised and title:

(i) to X's House will be transferred to X; and

(ii) to Y's House will be transferred to Y.

For these services, the Developer was to be paid:

(a) a management fee equal to #% of the total proceeds from the sale of the lots: and

(b) a development fee, which will be determined as a proportion of the proceeds from the sales of the lots.

Partnership B will stop using the part of the Property that will be developed for each of the proposed stages by the time the Developer starts development works.

On 20XX, the Commissioner issued a private ruling to X and Y confirming his view that the sales of the proposed Subdivided Lots were not subject to GST (20XX Ruling). Annexure # is a copy of the 20XX Ruling.

The 20XX Ruling anticipated that the sales of the Subdivided Lots would be completed towards the end of 20XX.

However, this did not occur because the Developer had difficulty obtaining:

(a) finance for the development - due mainly to a downturn in the residential market in the area at that time; and

(b) Council planning approval.

Preliminary approval for the subdivision of the Property was granted on 20XX (Approval). Annexure # of your submission is a copy of the Approval.

The Approval is for the Property to be subdivided into ### lots (Subdivided Lots) over ## stages.

Annexure # of your submission is a copy of the approved staging plan.

the Developer continues to provide the development services to you in accordance with the Development Agreement.

the Developer current projection is that the sales of the Subdivided Lots will return gross sales revenue of approximately $## million and an estimated return to X and Y of $## million.

You have not:

(a) been involved in any of the development activities;

(b) purchased any additional land for development;

(c) borrowed any funds for the development;

(d) developed the Property to any extent beyond the minimum requirements of the Council.

For the avoidance of doubt, the Applicants will not do any of these things in the future.

All Annexures attached to your private ruling application form part of the specified scheme. Material provided in support of both applications included all key documentation including the Development Agreement the parties entered into on 20XX.

The 20XX ruling only had a date of issue and did not contain a beginning or end date.

The development agreement entered into with the Developer remains in place.

Relevant legislative provisions

Taxation Administration Act 1953, Schedule 1, Section 357-5.

Taxation Administration Act 1953, Schedule 1, Section 357-60.

Taxation Administration Act 1953, Schedule 1, Section 357-70.

Taxation Administration Act 1953, Schedule 1, Section 357-75.

Taxation Administration Act 1953, Schedule 1, Section 359-1.

Taxation Administration Act 1953, Schedule 1, Section 359-5.

Taxation Administration Act 1953, Schedule 1, Section 359-10.

Taxation Administration Act 1953, Schedule 1, Section 359-25.

Reasons for decision

All references are to Schedule 1 to the Taxation Administration Act 1953 unless otherwise specified.

The law applicable to the general rules for all ruling types is set out in the Taxation Administration Act 1953, Schedule 1, Part 5-5, Division 357 and specifically private rulings in Division 359.

The object statement in section subparagraphs 357-5 (2)(d)-(g) states that the object is to be achieved amongst other things, by

(d) protecting you from increases in tax and from penalties and interest where you rely on rulings; and

(e) protecting you from decreases in entitlements where you rely on rulings; and

(f) limiting the ways the Commissioner can alter rulings to your detriment;...

Subdivision 357-B sets out the common rules for rulings.

Subsection 357-60(1) provides that a ruling will bind the Commissioner whether or not you are aware of it, if:

(a) the ruling applies to you; and

(b) you rely on the ruling by acting (or omitting to act) in accordance with the ruling.

Subsection 357-60(2) provides that you may rely on the ruling at any time unless prevented from doing so by a time limit imposed by a taxation law.

Division 359 deals with the rules specific to private rulings. Section 359-1 states that:

a private ruling is an expression of the Commissioner 's opinion of the way in which a relevant provision applies, or would apply, to you in relation to a specified scheme.

Additionally, private rulings are described in subsection 359-5(1):

The Commissioner may, on application, make a written ruling on the way in which the Commissioner considers a relevant provision applies or would apply to you in relation to a specified *scheme. Such a ruling is called a private ruling.

Under subsection 359-25(3) a private ruling that does not specify a start time begins from the time it was made. Additionally an indirect tax private ruling that does not specify an end date is addressed in the note to subsection 359-25(4). It states that:

A private ruling that:

(a) is an indirect tax or excise ruling; and

(b) does not specify an end time;

continues to apply until it is overridden by a later indirect tax or excise ruling: see subsection 357-75(1B).

The Commissioner's views on the administration of the private ruling system are outlined in Taxation Ruling TR 2006/11 Private Rulings. At paragraph 19 TR 2006/11 it states (footnotes omitted):

A private ruling binds the Commissioner if the private ruling applies to you and you rely on the private ruling. In such a case, the Commissioner must not apply the provision covered by the private ruling in a way that is inconsistent with the private ruling to your detriment. However, if the scheme is not implemented in the way set out in the private ruling, or material facts were omitted from the private ruling application, or misleadingly or inaccurately stated, the private ruling does not bind the Commissioner.

Further, paragraph 20, provides (footnotes omitted):

A private ruling applies to you if it is given in response to an application by you and the facts, assumptions or conditions set out in the ruling or accompanying documents are met. A private ruling applies for the specified period, so long as the law to which it relates remains in force. ... If no time is specified and the ruling is an indirect tax or excise ruling then it continues to apply until it is either replaced by a later indirect tax or excise ruling or it is revised.

In your case, you applied in your own names and the 20XX ruling is clearly addressed to you. On the available facts, the date of the ruling decision is 20XX and the Commissioner has not issued you a later indirect tax ruling. Accordingly, the ruling remains valid.

Further, we have considered the scheme as identified in the 20XX ruling with the facts of the development arrangement that you entered into. Analysis of these facts show that the material facts of the arrangement were disclosed and included in the scheme ruled on by the Commissioner in the 20XX ruling. In terms of the material elements, you have implemented the scheme in the way set out in the 20XX ruling and as such the 20XX ruling applies, and can continue to apply, to you.

You had entered into the development agreement on 20XX (therefore prior to the 20XX ruling) and that agreement is currently remains on foot. Since that time you have not registered for GST. This indicates that you are not acting in a manner contrary to the 20XX ruling that there is no GST payable. These facts are indicative of your continued reliance on the Commissioner's 20XX ruling.

As the 20XX ruling applies to you and can continue to apply to you, where the material elements of the scheme do not change and you continue to rely on the ruling, the Commissioner will be bound under section 357-60 to treat your supplies of land consisting of the property situated in Australia, are not in the course or furtherance of an enterprise and not subject to GST.