Edited version of private advice

Authorisation Number: 1052076501663

Date of advice: 19 January 2023

Ruling

Subject: Sale of residential land

Question

Question 1

Are you carrying on an enterprise with respect to the sale of the land?

Answer

No.

Question 2

Are you required to be registered for GST with respect to the sale of the land?

Answer

No.

Question 3

Are you making a taxable supply with respect to the sale of the land?

Answer

No.

This ruling applies for the following period:

XX December 20XX to XX December 20XX

The scheme commences on:

1 October 20XX

Relevant facts and circumstances

In September 20XX you purchased the land.

At the time, you were unable to finance the purchase on your own and decided to purchase the land together with your parents. you (as joint tenants) hold the land as tenants in common with your parents, who hold their 50% as joint tenants.

In order to make your half of the purchase, you took a Rate Saver Home Loan from the Commonwealth Bank of Australia (CBA). Your parents acted as the guarantor for this loan.

Given the size of the property, together with your parents, you planned to subdivide the land in 2. You would build on one end of the property whilst your parents would take the other.

Your parents were, at the time the land was purchased, already living nearby. However, they were looking to expand.

After the purchase of the land, due to an increase in the land value, you began to reconsider whether you wished to build on the land. You contacted a local developer to explore a potential subdivision plan.

The developer returned to you with a seven-block option, which included the purchase of an easement to construct a road. As this road could service the proposed subdivided lots or be used privately as part of the original plan to build your own home, you decided to proceed with the purchase.

Following negotiations with the local council over the course of 20XX, in May 20XX, you (together with your parents) initiated the purchase of the easement. The transfer of titles was finalised in February 20XX.

In late 20XX, with the purchase of the easement taking longer than expected, you decided not to progress with any potential subdivision plans in order to enable you to build on the land immediately.

You sought to purchase a home in the locality 'as a stepping stone' however you could not find a suitable property and decided to purchase a home in an adjacent suburb. This purchase was made in March 20XX.

In March 20XX you decided to explore subdivision options once again. Another local property developer, provided you with a Design Cost Estimate in January 20XX.

In September 20XX you discussed alternative, more cost effective/feasible, options for the land with yet another developer. Discussions continued throughout 20XX & 20XX until yourself and your parents reached the conclusion that you would not subdivide your land via a property developer and instead continue with the original plan to build homes for yourselves.

In May 20XX, you were approached with an offer to purchase the land. After many years of indecision you determined that selling the land may be for the best. You approached the developers you had previous dealings with in order to ascertain whether they had any interest in making an offer.

Finally, in August 20XX you agreed to a sale price and a draft contract was drawn up with one of those developers as the buyer.

You are the director of a GST registered entity. You did not bring the land into account as a business asset nor was the land applied in the business' activities. The company was established in October 20XX.

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

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 23-5

Reasons for decision

Subsection 9-20(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that an 'enterprise' includes an activity or a series of activities done in the form of a business or in the form of an adventure or concern in the nature of trade. Section 195-1 of the GST Act clarifies that 'carrying on an enterprise' includes doing anything in the course of the commencement or termination of the enterprise.

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) provides guidance on what activities will amount to an enterprise.

Paragraph 262 of MT 2006/1 provides that the question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions. Paragraph 264 of MT 2006/1 discussed the cases of Statham & Anor v. Federal Commissioner of Taxation 89 ATC 4070 (Statham) and Casimaty v. FC of T (1997) 151 ALR 242 (Casimaty) and provides some guidance on when activities to subdivide land amount to a business or a profit-making undertaking or scheme.

The following factors, drawn from the Statham and Casimaty cases, may indicate that a business or an adventure or concern in the nature of trade is being carried on:

•         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.

Applying the above factors to your circumstances:

There is a change of purpose for which the land is held

Together with your parents, you purchased the property in 20XX with intent to subdivide the land in two, each couple taking half the property to build a residence for themselves.

On multiple occasions you considered further subdividing the land in order to sell for profit, going as far as to obtain subdivision plan proposals from local property developers. However, ultimately, each time you decided against subdivision and returned to your original goal of building a residence for yourself on the property as subdivision and development was either too costly or too involved.

Prior to being approached with an offer to purchase your land you were still intending to build a residence upon the land. It was only after this offer was made that, considering many years of indecision and a fading desire to move into the locality, that you decided selling simply selling the land as is would be the most convenient option.

Additional land is acquired to be added to the original parcel of land;

In 20XX you finalised the purchase of an easement, intended for the construction of a road. Although this road was proposed as part of the first subdivision plan, you decided to proceed with the purchase as it would be able to serve either the proposed subdivision or the original plan of building two homes for yourself and your parents.

The parcel of land is brought into account as a business asset;

The land was acquired for private use. You did not bring the land into account as a business asset, nor is there any indication that the land should be considered a business asset.

There is a coherent plan for the subdivision of the land

As above, you received many subdivision plan proposals however you decided not to subdivide the land.

There is a business organisation - for example a manager, office and letterhead;

Regardless of any enterprise that you may carry on, with respect to the sale of the land, you have not conducted yourself in a business-like manner. The land was not brought into account as a 'business' asset and you have not appointed a manager specifically in relation to the sale of the land.

Borrowed funds financed the acquisition or subdivision;

In order to purchase the block of land you took a loan, with your parents acting as the guarantor. However, at the time you were purchasing the land for private use, there was no profit motive behind the acquisition.

Although you received multiple proposals for subdivision, rather than borrowing funds to finance the project, you decided that subdivision is not feasible for you financially.

There is a level of development of the land beyond that necessary to secure council approval for the subdivision/buildings have been erected on the land.

You have not undertaken any work to develop the land. Per the facts, the land has remained vacant from the date you purchased the land to the date that you sold the land.

In light of your circumstances, it is reasonable to conclude that you are not carrying on a business nor does the sale of the land amount to an adventure or concern in the nature of trade. As such, the Commissioner does not consider you to be carrying on an enterprise with respect to the sale of the land

Question 2

Under section 23-5 of the GST Act, you are required to be registered if:

(a)  you are carrying on an enterprise; and

(b)  your GST turnover meets the registration turnover threshold

As established in Question 1, you are not carrying on an enterprise with respect to the sale of the land and therefore you are not required to be registered for GST as a result of the sale.

Question 3

Under section 9-5 of the GST Act, 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 the indirect tax zone; and

(d)  you are registered, or required to be registered

You received payment for the sale of land therefore paragraph (a) is satisfied. As the property is located within Australia, the supply is connected with the indirect tax zone (paragraph (b)).

As established previously, in Questions 1 & 2, you are not carrying on an enterprise with regard to the supply of land nor are you registered or required to be registered for GST as a result of the sale.

Although you are the director for a GST-registered entity, in order to satisfy paragraph 9-5(b), the supply must be made in the course or furtherance of an enterprise that you carry on. As the land is not connected with your business' activities, nor was it intended to be, the supply is not made in the course or furtherance of an enterprise that you carry on.

Therefore, as the supply does not satisfy the requirements for making a taxable supply outlined in section 9-5, you are not making a taxable supply of land.