Edited version of private advice

Authorisation Number: 1052187718327

Date of advice: 31 October 2023

Ruling

Subject: GST and the sale of land

Question

Was your supply of Lot B and Lot C, located in the indirect tax zone, a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)?

Answer

No

This ruling applies for the following period:

1 January 20XX to 30 December 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You registered for GST on a specified date effective from a specified date. You were previously registered for GST for an enterprise but cancelled your registration effective a specified date.

You purchased the Property on a specified date with settlement occurring on a specified date for $XX, as your new principal residence.

You signed a contract to sell your previous family home on a specified date with settlement occurring on a specified date

You purchased the Property due to the size of the land, as you intended to maintain the existing orchard and become more self-sufficient for your food requirements.

In 20XX your family members asked if they could move to the Property. Due to government restrictions, the maximum size for a secondary dwelling was 100m2, which was not sufficient to accommodate them and family for extended visits.

You considered various options for the subdivision of the Property.

Your initial discussions with the Council were for a secondary dwelling on your Property. They advised that a subdivision would be the only option to accommodate a larger home.

You first considered a 2-lot subdivision with one lot (xm2) at the rear and maintaining a second lot of xm2 with your home at the front of the Property. However, there were concerns that if there was an emergency you may be too far away to attend in a timely fashion. Also, the required infrastructure costs were exorbitant to separate one lot to the rear.

You then considered a xm2 block behind a xm2 front lot with your residence, but this meant a xm2 lot at the rear would be disconnected from your residence and be wasted land.

There were rumours that the Council was going to prohibit subdivision in your area. Hence, in 20XX you decided to submit a development application to secure the possibility of building a dwelling for your family members.

In 20XX you sought advice from a planner, who advised that a four-lot subdivision was the most cost-effective design. You received a pricing proposal letter from the planner to carry out the preparation for a three to four lot subdivision, submission for a development application. You accepted the LandTeam proposal and signed the confirmation of instruction on a specified date.

In 20XX, you submitted a four-lot development application to the Council for subdivision of the Property, to permit the building of a secondary dwelling for your family members.

On a specified date you received the development approval (DA), from the Council.

The development approval provides:

•         For a 4-lot subdivision.

•         Consent to operate from a specified date lapsing on a specified date.

You did not proceed with the subdivision at this time, as your family members changed their mind due to the distance from their other family.

In mid-20XX, as a result of your personal financial circumstances and the impacts of the Covid pandemic, you decided to proceed with the approved subdivision. Further, your parents/parent-in-laws had once again approached you with the idea to build a home on the block, due to their isolation associated with the Covid pandemic.

On a specified date you requested 4 separate quotes from a contractor.

In 20XX you commenced works, the estimated total cost of the works was $X.

On a specified date, person A contacted you regarding her search for land to purchase. You commenced discussions and agreed on a sale price. You have provided the initial sale contract for a Lot.

On a specified date persons B and C, agreed to purchase a Lot for $X. You have provided the initial sale contract for this lot.

On a specified date your conveyancing lawyer sent you an email asking you to confirm with your accountant whether GST withholding was required. Your accountant advised that you would not be subject to GST withholding.

On a specified date, your conveyancing lawyer once again enquired about the GST status of the transaction. After further discussions with your Accountant, who advised that GST would apply to the sale of the lots. You therefore advised your conveyancing lawyer that GST would need to be included in the sale price of the respective lots.

On a specified date you received the subdivision certificate from the Council.

Settlement for the lots occurred on a specified date. GST withholding payments were remitted for the lots.

You have retained two lots, one lot with your residence and the other for the construction of a home for your family members.

You have not made any plans for any construction or development on the retained lot.

You have previously subdivided a property at. You sold the subdivided lot and existing retained residence in 20XX and 20XX.

You have provided the following documents:

•         Notice of determination of a development application

•         Notice of determination of activity application

•         Notice of determination of an application for consent for works and structures in/on a public road

•         Notice of payment - Developer charges

•         Subdivision certificate.

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

Reasons for decision

In this ruling,

• unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)
• all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act.
• all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website ato.gov.au

Section 9-40 provides GST is payable on *taxable supplies. Section 9-5 provides that you make a taxable supply if:

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 the indirect tax zone (Australia)

d)    you are *registered or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

In your case, you sold the Lots for their respective sale prices, the sales were supplies for consideration. The lots are located in Australia, and in the indirect tax zone. In addition, the supplies will not be input taxed or GST free. You are registered for GST.

You were not registered for GST until you asked your accountant, after your conveyancing lawyer queried if the Lot sales were subject to GST withholding. Initially, your accountant advised the sale of the lots would not be subject to GST withholding, after a subsequent query you were informed you would need to be registered for GST. You then registered for GST on the basis of this advice. You are still registered for GST.

Therefore, it needs to be determined whether the sale of the Lots were supplies made in the course or furtherance of an enterprise that you carry on and therefore whether you are required to be registered for GST.

Section 9-20 provides an enterprise is an activity, or series of activities, done (among other things):

a)    in the form of a *business; or

b)    in the form of an adventure or concern in the nature of trade; or......

Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purpose of entitlement to an Australian Business Number (MT 2006/1) provides the Commissioner's view on the meaning of 'enterprise' in the context of the A New Tax System (Australian Business Number) Act 1999. However, paragraph 20 of MT 2006/1 provides that the ruling's discussion on 'enterprise' applies equally to the GST Act. Goods and Services Tax Determination GSTD 2006/6 Goods and services tax: does MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999? (GSTD 2006/6) also provides that the discussion on 'enterprise' in MT 2006/1 applies to the GST Act.

Paragraph 159 of MT 2006/1 discusses how to determine the extent to which an activity or a series of activities amounts to an enterprise:

159. Whether or not an activity, or series of activities, amounts to an enterprise is a question of fact and degree having regard to all of the circumstances of the case.

Furthermore, paragraph 160 of MT 2006/1 discusses the need to identify all the relevant activities in order to determine the existence of an enterprise:

160. It is important that the relevant activity or series of activities are identified in order to determine whether an enterprise is being carried on. This is because one activity may not amount to an enterprise but that activity taken into account with other activities may form an enterprise. All activities need to be taken into account including activities from the commencement to the termination of the enterprise. For further information on commencement and termination activities, see paragraphs 120 to 148 of this Ruling.

On these facts, the relevant activities are the activities associated with your purchase of the property, subdividing it into four lots, including the one with your residence. Also, preparation and sale of the two lots. These activities will now be examined in light of the relevant types of enterprises listed under section 9-20, described above. We consider the other types of enterprises listed under section 9-20 are not applicable on these facts.

Are the relevant activities relating to the Land in the form of a business?

Section 195-1 provides that a 'business' includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee.

As noted in paragraph 176 of MT 2006/1, the meaning of 'business' is considered in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? (TR 97/11). Although TR 97/11 deals with carrying on a primary production business, the principles discussed in TR 97/11 apply to any business.

Paragraphs 177 to 179 of MT 2006/1 discuss the main indicators of carrying on a business, with reference to the principles in TR 97/11:

Indicators of a business

177. To determine whether an activity, or series of activities, amounts to a business, the activity needs to be considered against the indicators of a business established by case law.

178. TR 97/11 discusses the main indicators of carrying on a business. Based on that discussion some indicators are:

•         a significant commercial activity;

•         a purpose and intention of the taxpayer to engage in commercial activity;

•         the activity is or will be profitable;

•         the recurrent or regular nature of the activity;

•         the activity is carried on in a similar manner to that of other businesses in the same or similar trade;

•         activity is systematic, organised and carried on in a businesslike manner and records are kept;

•         the activities are of a reasonable size and scale;

•         a business plan exists;

•         commercial sales of product; and

•         the entity has relevant knowledge or skill.

179. There is no single test to determine whether a business is being carried on. Paragraph 12 of TR 97/11 states that 'whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing all the relevant indicators'. TR 97/11 can be referred to for a fuller discussion on whether a particular activity constitutes the carrying on of a business.

Given the facts provided, we consider that the activities you have undertaken do not display the salient indicator of a business, which are transactions entered into on a continuous and repetitive basis.

Furthermore, your activities do not appear to be carried out in a systematic, organised, and businesslike manner, nor do you appear to have the intention to engage in commercial activity. This based on the fact that you did what was required to satisfy the conditions of the Development Approval when your financial circumstances permitted you to do so. You sold the Lots as vacant land to fully utilise your property and to allow for a lot to be retained for your family members, while continuing to live on the Property in your residence. This demonstrates you did not have the intention to maximise the potential profit you could generate from the sale of the Land.

For the above reasons, we do not consider that your actions of acquiring the property and subdividing it for partial sale as vacant land and to accommodate your family members to constitute activities in the form of a business.

Are the relevant activities relating to the Land in the form of an adventure or concern in the nature of a trade?

'An adventure or concern in the nature of trade' is not defined in the GST Act.

Paragraph 234 of MT 2006/1 distinguishes between activities done in the form of a 'business' and those done in the form of 'an adventure or concern in the nature of trade':

234. Ordinarily, the term 'business' would encompass trade engaged in, on a regular or continuous basis. However, an adventure or concern in the nature of trade may be an isolated or one-off transaction that does not amount to a business but which has the characteristics of a business deal.

Paragraph 244 of MT 2006/1 provides additional guidance on the nature of activities that would constitute 'an adventure or concern in the nature of trade':

244. An adventure or concern in the nature of trade includes a commercial activity that does not amount to a business but which has the characteristics of a business deal. Such transactions are of a revenue nature. However, the sale of the family home, car and other private assets are not, in the absence of other factors, adventures or concerns in the nature of trade. The fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature.

In your case, given that the relevant activities concern a single project, consideration needs to be given whether your activities constitute an adventure or concern in the nature of trade.

Paragraph 264 of MT 2006/1 discusses two seminal cases in this area: Statham & Anor v Federal Commissioner of Taxation 89 ATC 4070 (Statham) and Casimaty v FC of T 97 ATC 5135 (Casimaty). Paragraph 265 of MT 2006/1 extracts the key elements of both cases and provides a list of factors that can be used to assist in determining whether isolated property transactions are an adventure or concern in the nature of trade or a mere realisation of a capital asset:

265. From the Statham and Casimaty cases a list of factors can be ascertained that provide assistance in determining whether activities are a business or an adventure or concern in the nature of trade (a profit-making undertaking or scheme being the Australian equivalent, see paragraphs 233 to 242 of this Ruling). If several of these factors are present it may be an indication that a business or an adventure or concern in the nature of trade is being carried on. These factors are as follows:

•        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 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.

In addition to the above, paragraphs 266 and 267 of MT 2006/1 provides that there may be other relevant factors outside this list that present on the facts of a given case, and that no individual factor is determinative to the question of whether an enterprise is present:

266. In determining whether activities relating to isolated transactions are an enterprise or are the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each particular case. This may require a consideration of the factors outlined above, however there may also be other relevant factors that need to be weighed up as part of the process of reaching an overall conclusion. No single factor will be determinative rather it will be a combination of factors that will lead to a conclusion as to the character of the activities.

267. No two cases are likely to be exactly the same. For instance, while the conclusions reached in the Statham and Casimaty cases were similar, different facts and factors were considered to reach the respective conclusions.

In your case, the majority of the salient factors listed in paragraph 264 of MT 2006/1 are not present. While you did take out a loan to acquire the property and a subsequent loan that was utilised to complete subdivision works, this is a common activity done in the course of acquiring a high value asset and, by itself, does not suggest the undertaking of an adventure or concern in the nature of trade. These facts are also not conducive to the undertaking of an adventure or concern in the nature of a trade.

As noted above, your activities in relation to the subdivision of the Land were not done in a businesslike manner. While there was a coherent plan of subdivision as evidenced by the Development Approval, you have only undertaken meeting the conditions of the Development Approval. You did not erect any buildings on the Lots which were sold, while you will retain a lot (which contains your home) as your principal place of residence, and an additional lot for your family members.

Your circumstances bear some similarities to Example 33 of MT 2006/1:

Example 33

291. Ursula and Gerald live on a 2.5 hectare lot that they have owned for 30 years.

292. They decide to sell part of the land and apply to subdivide the land into two 1.25 hectare lots. The survey and subdivision are approved. They retain the subdivided lot containing their house and the other is sold.

293. Ursula and Gerald are not carrying on an enterprise and are not entitled to an ABN in respect of the subdivision as the subdivision and sale are a way of disposing of some of the land on which their home is situated. It is the mere realisation of a capital asset.

In your case, while you have only held the property since 20XX, you have used it as your primary place of residence since shortly after you acquired it. As in Example 33, your subdivision of the property into X lots, and sale of lots, as vacant land, whilst retaining one lot for your family members and the lot with your existing primary residence is a mere realisation of a capital asset.

For the above reasons, we consider your relevant activities in relation to the subdivision and sale of the Lots did not amount to an enterprise in the form of an adventure or concern in the nature of a trade.

Given your relevant activities in relation to the Lots were neither in the form of a business, nor in the course or furtherance of an adventure or concern in the nature of a trade, you did not carry on an enterprise under section 9-20 in relation to the subdivision of the Land and sale of the Lots as vacant land.

Therefore, you are not required to be registered for GST in relation to the sale of the Lots. Therefore, the sales were not a taxable supply under section 9-5