Edited version of private advice

Authorisation Number: 1052091519483

Date of advice: 24 February 2023

Ruling

Subject:GST - property - subdivisions

Question

Was GST payable on the supply made by you, of the vacant land located at <property address> known as Lot <number> (the Property) pursuant to section 9-40 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, GST was not payable by you on the supply of the Property pursuant to section 9-40 of the GST Act. The Commissioner considers it was not a taxable supply under section 9-5 of the GST Act as paragraph 9-5(b) was not satisfied, that is, the supply was not made in the course or furtherance of an enterprise that you carried on.

This ruling applies for the following period:

1 July 20XX to 30 June 20XX

The scheme commences on:

XX February 20XX

Relevant facts and circumstances

This private ruling is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You, are currently registered for GST in relation to your business. You have been registered for GST from <date>.

You are the director of a number of companies predominantly involved in your business.

Neither you nor your related entities have ever been engaged in property development activities.

Your spouse (at the time) purchased a property known as 'property name', with the intention of one day building your personal residence. The tittle registered in their name on <date>.

Given your numerous business interests <property name> was acquired solely in your spouse's name, in order to protect your future family home from business risks.

Your related entity purchased the adjacent Lot <number> (property address>) on <date>. This is the same date <property name> was registered to your former spouse. Your child currently occupies this property.

The title to <property name> was later transferred to you in <year>, when you and your spouse separated, as part of the financial agreement under the separation.

<Property name> was located on a multi-lot title comprising of Lots <number> and <number> on Diagram <number> and Lots <number>, <number> and <number> on Plan <number> being the whole of the land in Certificate of Tittle Volume <number> Folio <number>.

When purchased, <property name> consisted of approximately <number> in land size, and contained an existing six-bedroom, three- bathroom house with two kitchens, scullery, formal lounge, three living rooms, ballroom, sewing room, utility room, cellar, wraparound verandah, greenhouse, coach house and stables etc.

<Property name> was and continues to be subject to a restrictive covenant contained in transfer <number> (the Restrictive Covenant) which restricts the entire land to no more than one residence on the whole of the land. The restrictive covenant was acceptable to you and your spouse at the time as you intended to build your family home which would comprise of one building.

After your spouse acquired <property name>, you were informed that the residence had heritage value and that an application to the Heritage Council would be submitted to have the house heritage listed. An interim heritage listing was made on <date>. This listing prevented the demolition of the house to build a new residence as planned.

<Property name> was permanently listed on the State Register of Heritage Places on <date> and removed on <date>. Another interim entry was made on <date>, with this becoming a permanent heritage list entry on <date>.

You and your spouse spent several years (approximately <year> to <year>) getting legal advice and extensively lobbying to get the heritage listing on the house overturned and determining the possible challenge to remove the restrictive covenant.

Your former spouse received written legal advice from <entity name> on <date> that in certain circumstances it is possible to discharge or modify a restrictive covenant. As per that advice those circumstances included but may not be limited to:

•         Agreement between you and the parties who benefited from the restrictive covenant. In this case the benefiting party is the owner of Lot <number> on Diagram <number> and being the whole of the Certificate of Title Volume <number> Folio <number> (benefiting party).

•         The merging of the benefiting property and the property the subject of the restrictive covenant - for instance if you were to purchase the benefiting property (Lot <number> on Diagram <number> and being the whole of the Certificate of Title Volume <number> Folio <number>).

•         Court order pursuant to section 129C of the Transfer of Land Act 1893 on one of the limited grounds therein prescribed and summarised as follows:

a)    Where by reason of:

                                                      i.        The change in the user of any land which is benefited by the restrictive covenant; or

                                                     ii.        Change in the character to the property or the neighbourhood; or

                                                    iii.        Other circumstances of the case which a Court may deem material, the continued existence of the restrictive covenant would impede the reasonable user of the land without securing practical benefits to the person benefiting from the restrictive covenant or would, unless modified, so impede such a user,

b)    Where it is agreed between the parties that the restrictive covenant should be modified or extinguished; or

c)    Where the party benefiting from the caveat can be reasonably taken to have, by their act or omissions, waive the benefit of all or part of the restrictive covenant; or

d)    Where ethe proposed extinguishment, discharge or modification will not substantially injure the persons entitled to the benefit of the restriction.

Unless the Court is satisfied that one of the above grounds exists, there can be no discharge or modification of a restrictive covenant by Court order

You also obtained advice from Queens Counsel, on the removal of the restrictive covenant and heritage listing. You were advised by the QC to lodge a "development application" (i.e. for demolition) in order to trigger a right of appeal to the Tribunal.

Your efforts to demolish the existing house was publicised and scrutinized publicly.

Whilst the Restrictive Covenant continues to apply the State Parliament agreed to remove <property name> from the Heritage list on <date>. However, there was a time limit in which to demolish the original house and build under this decision. If you did not demolish within this timeframe, the property could revert to being heritage listed. Due to your extensive work commitments, you were not able to adhere to the deadline to build your personal residence.

Whilst you did not adhere to the deadline the heritage listing was not reinstated before you made the decision to sell a portion of <property name>. Due to its size, location and particularly the restrictive covenant, you figured it would have been difficult to obtain a buyer for the whole property. Accordingly, you consulted with town planners to subdivide <property name> in <year>. There were already multiple titles on <property name>, however, you wanted to take out and sell the land containing the original residence given that a smaller and hence more affordable property had a better chance of selling. On <date> you were granted approval to subdivide <property name> subject to conditions within a three-year period.

Adhering to the minimum planning authority requirements that required certain setbacks and a certain amount of open space around the house, <property name> was subdivided on <date>. The original house and land around it were carved out and became Lot <number> on Deposit Plan <number> (<property address>). The vacant land in front of the house became Lot <number> on Deposit Plan <number> and is known as <property address> (herein referred to as Lot <number>). This separation made the residential house more affordable to buyers.

You engaged <entity name> to facilitate and conduct all the subdivision works on <property name>. <Entity name> managed and coordinated contractors and all physical works on site.

You supplied a table outlining the works involved in the subdivision of <property name> and the costs involved which you funded personally.

You provide a diagram which shows the subdivision of <property name>.

In <month> <year> (prior to the subdivision being finalised) you engaged the services of <entity name> to market and sell <property address>.

Whilst this property was being marketed for sale, the benefiting party to the restrictive covenant through their legal representative (entity name>), asserted in writing their right to enforce the restrictive covenant and requested assurances that the restrictive covenant would be transferred to all of the subdivided lots.

On <date> (also prior to the subdivision being finalised) you entered into a contract for the sale of <property address> (containing the original residence) with purchaser. Accordingly, the contract for the sale of this property was subject to a number of special conditions one of which was the restrictive covenant.

You retained vacant Lot <number> on Deposited Plan <number> and Lots <number> and <number> on Diagram <number> on which the original, unused and now deteriorated coach house and stables are located. These lots also continue to be subject to the restrictive covenant.

In early <year>, you wanted to consolidate your personal assets and determined that you did not have use for Lot <number> and considered selling this vacant lot.

On <date> you entered into a contract for the sale of <property address> (Lot <number> on Deposit Plan <number>) being the part of land in Certificate of Title Volume <number> Folio <number> with purchaser. The same buyer of your former Lot <number>, <property address>, purchased this lot as they did not want a new owner trying to overturn the restrictive covenant and building on Lot <number> thereby reducing the value of their property.

You negotiated the sale of Lot <number> with <individual name> directly and did not engage the services of a real estate agent to market and sell this property.

Settlement of this sale took place on <date>.

During the period of ownership from <year> to <year>, the house on the property has never been leased and has always been either your spouse's or your private asset. Neither you nor your former spouse resided in the house during the period of ownership. Apart from the minor subdivision works detailed above and works to maintain the house, no other works have been done to the property.

You continue to hold Lots <number> and <number> on Diagram <number>.

Other property ownership

You provided a table outlining your current and prior property ownership (solely, jointly and beneficially).

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 Division 38

A New Tax System (Goods and Services Tax) Act 1999 Division 40

A New Tax System (Goods and Services Tax) Act 1999 subsection 195-1