Edited version of private advice

Authorisation Number: 1051990070880

Date of advice: 15 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 in 20xx, such that you are not liable to any GST on the sale of subdivided lots from the real property situate in Australia?

Answer

Yes, you may continue to rely on the private ruling issued to you in 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 as not being subject to GST.

Relevant facts and circumstances

You applied for a goods and services tax (GST) private ruling in 20xx.

In response to your application, the Commissioner issued you a GST Private Ruling in 20xx (the 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, XY (the Developer). The scheme identified the following facts:

•         You are registered for goods and services tax (GST) and carrying on an enterprise of farming.

•         You have voluntarily registered for GST for the purposes of your farm enterprise as your annual turnover does not exceed the GST registration turnover threshold.

•         Due to ongoing bookkeeping and compliance requirements you may seek to deregister for GST purposes in the near future.

•         You have been active in the farming business at all times since 19XX, but now struggling to maintain the workload required due to your advancing age and declining health.

•         You acquired the current Lots AA, AB and AC from relatives and the adjoining property namely the current Lots AD, AE and AF in or around 19XX. You reside on Lot AF.

•         There are number of property development activities carried out by the council in your area such as rezoning under the urban development.

•         In 20XX, the State Government acquired approximately YY acres of your properties for the construction of a Motorway. You and your late husband received consideration.

•         In 20YY, the Council acquired a small parcel of land to construct a reservoir and you received consideration.

•         Now the property developers are eager to develop the whole area into a residential subdivision including a substantial part of your properties to be called "ABC".

•         The council is concerned that if a property owner did not participate in the whole of rezoning, the property of that particular land owner would become landlocked in a developing urban setting.

•         In early 20ZZ, a property developer made a formal offer to develop rather than acquire a significant part of your properties. The formal offer includes the following:

­   The developer would proceed to develop a defined part of the lots as part of a larger scale development of the area.

­   It is estimated that the defined part of the property subject to the proposed development agreement would result in a number of developed residential lots.

­   The developer will pay you $X exclusive of GST upon entering of a formal agreement and if the developer fails to secure the development application within the specified period, then you will refund this amount less $Y to be retained by you.

­   The development will be fully conducted by the developer and they will have the final decisions in relation to all development related matters concerning the properties.

­   The developer will fund the development costs and the sale of the individual lots will be made by the developer on your behalf.

­   From the sale proceeds of the lots you are required to reimburse the developer for all the costs incurred for the development and/or a development fee; and

­   After reimbursing the above costs and fee, you are entitled to retain ZZ% of the gross proceeds of the sales.

•         The residual land will be retained by you and you will continue to live in the farm house at Lot AF and will continue to operate your farming activities on a smaller scale.

•         Your agent has confirmed that you will be selling subdivided vacant land and will only carry on the minimum development activities required by the council. You may build a sales office for the development purposes.

•         Your tax agent also indicated that the final outcome with the developer would be that you retain ZZ% of the gross proceeds of sales of the developed properties, which is a fully variable option.

•         The Ruling does not indicate a start or expiration date, only the date of issue.

•         The Developer has since obtained a development approval, but it does not set out any significant changes to those considered under the 20xx Ruling.

•         Since receipt of the Ruling in 20xx, you entered into an agreement with the Developer in reliance of that Ruling.

•         You provided under correspondence on 20xx amongst other things, a copy of the Ruling, copy of the Development Agreement, amending deeds and a power of attorney granted by you to the Developer

•         In 20xx, the Commissioner also issued a private ruling to you confirming that the Commissioner's view was that:

(a) profits from the subdivision and sale of part of the Property were not assessable:

(i) under section 6-5 of the Income Tax Assessment Act 1997 (1997 Act); or

(ii) under section 15-15 of the 1997 Act;

(b) the Property was an active asset under section 152-35 of the 1997 Act; and

(c) you were a small business entity. (the 20xx Income Tax Ruling)

Annexure B of your ruling application is a copy of the 20xx Income Tax Ruling.

•         The 20xx Income Tax Ruling specified that it applied up until 20xx. As above, aside from the progress of the subdivision, the facts and circumstances in the 20xx Income Tax Ruling are not materially different to the relevant facts and circumstances in this current application.

•         The subdivision and sales of lots were delayed, with the effect that the sales were not completed before 20xx. You therefore applied for a further income tax private ruling and in 20xx, the Commissioner issued a further private ruling stating that in his view the 'proceeds' from the sale of the subdivided lots were assessable under section 6-5 of the 1997 Act (the 20xx Income Tax Ruling).

•         You disputed the correctness of that ruling and, following a disallowed objection, you resolved the issue with the Commissioner.

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 as an individual and the 20xx ruling is clearly addressed to you. On the available facts, the date of date of the ruling decision is in 20xx and no later indirect tax ruling has issued. Accordingly, the ruling remains valid.

Further, we have considered the scheme as identified in the 2014 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.

It is also considered that your entry into the development agreement indicating there is no GST payable and not reregistering for GST is indicative of your 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 as described in the facts are not in the course or furtherance of an enterprise and not subject to GST.