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Edited version of private advice
Authorisation Number: 1052175373227
Date of advice: 5 October 2023
Ruling
Subject: GST and sale of a capital asset
Question
Are you liable to pay GST on the sale of Lot A and Lot B pursuant to section 9-40 of a New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
No.Section 9-40 of the GST Act provides that you must pay the GST payable on any taxable supplies that you make.
Section 9-5 of the GST Act provides that you make a taxable supply if the supply meets all the following requirements:
(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 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 information provided, we consider that your activity of subdivision and sale of the subdivided lots is a mere realisation of a capital asset.
Consequently, the sales of the subdivided lots do not meet the requirement in paragraph 9-5(d) of the GST. This is because you are neither registered, nor required to be registered for GST as the sale of capital assets are excluded from the calculation of the projected GST turnover (paragraph 188-25(a) of the GST Act).
You are therefore not liable to pay GST on the sales of the subdivided lots as the sales do not meet all the requirements of section 9-5 of the GST.
This ruling applies for the following period:
1 July 2021 to 30 June 2022
Relevant facts and circumstances
You are not registered for GST.
You are an employee and director of XYZ Pty Ltd (the company). The company carries on a specified business.
Neither you nor the company have ever been involved in any property development activities.
You purchased a residential property at a specified address (the Property) as an investment property for $X plus stamp duty of $X and settlement fees of $X on DD MM YYYY. The purpose of purchasing the Property was to generate rental income and hold the Property long term for capital growth.
You took out a residential investment loan for $X over a X-year term on DD MM YYYY. You used the equity in your owner-occupied property for the deposit of the $X purchase price.
The Property was rented out straight away.
The Property contained an old house built in the 19XXs and was very run down. The Property incurred repairs and maintenance costs each year and was costing money with no capital growth. You decided to sell the Property.
On DD MM YYYY, you refinanced for the full amount of the Property/fees.
You sought the advice of a real estate agent who advised that their market appraisal at that point in time was approximately $X. The real estate agent recommended demolishing the existing home, subdividing the land into 2 blocks and selling the blocks individually, as the cheapest option and best way to minimise the loss.
On DD MM YYYY, you engaged a specified entity to carry out the subdivision work.
On DD MM YYYY, you engaged the services of a specified real estate agent to sell the proposed subdivided lots.
On DD MM YYYY, you entered into a contract of sale with the purchaser of the proposed Lot A. On DD MM YYYY, you entered into a contract of sale with the purchaser of the proposed Lot B.
Following advice from your real estate agent on DD MM YYYY, works technically commenced once demolition approval was received on DD MM YYYY. The old house was demolished on DD MM YYYY.
The Property was tenanted each year until the date of the demolition of the old house.
The development application to subdivide the Property was submitted on DD MM YYYY and the conditional approval was granted on DD MM YYYY. The conditions were as follows:
...
You carried out the following works:
...
You incurred the following subdivision costs:
...
The subdivision costs were funded from your personal savings.
The subdivision works were completed on DD MM YYYY.
The land was subdivided into two lots, Lot A and Lot B, with an area of X sqm each.
Certificate of titles for the subdivided lots were issued on DD MM YYYY.
You did not build any structures on the subdivided lots.
You sold Lot A for $X. Settlement occurred on DD MM YYYY. You sold Lot B for $X. Settlement occurred on DD MM YYYY. This resulted in a loss of $X.
If you had sold the property as was, the loss would have been $X.
Neither you nor any of your associated entities have claimed any income tax deductions for the costs associated with the subdivision of the Property and the sale of the subdivided lots, or the interest on the loans.
No input tax credits have been claimed for the costs associated with the subdivision of the Property or the sale of the subdivided lots.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 9-5
A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 9-40
A New Tax System (Goods and Services Tax) Act 1999 (GST Act) paragraph 188-5(a)