Edited version of private advice

Authorisation Number: 1052198441479

Date of advice: 29 November 2023

Ruling

Subject: GST - taxable supply

Question 1

Will your supply of the Land - proposed Lot <number> on Deposited Plan <number> contained within parent Lot <number> Deposited Plan <number>, known as <property address> (the Land) to <government authority>, be a taxable supply pursuant to section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

This ruling applies for the following period:

<date> to <date>

The scheme commenced on:

<date>

Relevant facts and circumstances

<Individual name> and <individual name> are a retired married couple (the couple). The couple have two adult children named: <individual name> and <individual name>.

In <year>, the couple purchased a property located at <property address>. This property is formally known as Lot <number> in Deposited Plan <number> in Certificate of Tittle Volume <number> Folio <number> (the Property).

When purchased, the Property consisted of <number> square metres of vacant land. You are not aware of the zoning of the Property at the time of purchase. The Property was purchased with the intention to build your family home on it however this has not eventuated.

In <month> <year>, the couple's children became part-owners of the Property. The ownership structure of the Property became as follows:

Table 1: The ownership structure of the Property became as follows:

The couple decided to transfer a portion of the Property to their children as part of their inheritance and to obtain assistance from the children to fund the holding costs (eg rates, land tax etc).

These individuals are not currently registered for GST as a partnership or individually nor have they been registered for GST in the past.

Collectively the owners of the Property will here forth be referred to as You and/or the Owners.

Use of the Property

Since acquiring the Property, you have not built upon the property nor conducted any form of business from the Property. The Property has not been leased and has remained vacant the entire period of ownership. The Property has not generated any form of income for the Owners.

During the period of ownership, you have only maintained the grass on the Property.

Subdivision

While you are not aware of the zoning of the Property when you first purchased it, you became aware of a change in the zoning of the Property when speaking with a real estate agent in <year> and when the Department of Planning and Environment sent you a letter advising of the rezoning.

The Property was rezoned to - <zoning classification>. The portion of the Property that forms part of proposed Lot <number> on Deposited Plan <number> contained within parent Lot <number> Deposited Plan <number> was rezoned to '<zoning classification>'.

You received a letter from the Department of Planning, Industry and Environment dated <date> informing you that your Property had been identified for future acquisition as part of the finalisation of the < name of planning package> to allow for the delivery of essential services including transport, utilities, stormwater and open space. The letter also advised that <government authority> was the responsible acquiring authority (the acquiring authority).

You engaged the services of <entity name> (your solicitors) to liaise with the acquiring authority in approximately <month> <year>. In <month> <year> your solicitors initiated a claim for hardship under section 23 of the Land Acquisition (Just Terms Compensation) Act 1991 (state). Under these hardship provisions, owners of land that has been identified for future acquisition can apply for early acquisition if they can show that they would suffer hardship if the acquisition is delayed.

The acquiring authority have since made you an offer to acquire a portion of your Property. The acquiring authority will lodge a plan of subdivision with <state> Land Registry and will also engage their own surveyor and pay for all the associated costs of the subdivision.

A draft contract of sale has been drawn up based on the terms and conditions contained within the acquiring authority's 'Revised letter of Offer' dated <date>, however the contract of sale has not yet been executed by the parties.

Draft contract of sale

The supply under the draft contact of sale is for the sale of the proposed Lot <number> on Deposited Plan <number> contained within parent Lot <number> Deposited Plan <number> comprising of <number> square metres of vacant land (the Land) by you, to <government authority (ABN: <number>) (the Purchaser) for $<amount> exclusive of GST.

Relevant clauses of the contract of sale have been provided.

Remaining Land

You intend to sell the portion of the remaining land consisting of proposed Lot <number> on Deposited Plan <number> contained within parent Lot <number> Deposited Plan <number> and comprising of approximately <number> hectares (the Remaining Land). You intend to sell the Remaining Land as the land tax payments have become burdensome.

You have approached a real estate agent to see whether they could sell the Remaining Land however you have been advised the current zoning of the Remaining Land is of concern.

You intend to approach the <local> Council and propose they acquire the Remaining Land as you believe that due to the current zoning, no other party or authority would want to acquire this land.

To date the Remaining Land has not been marketed for sale and you have not received any offers from potential buyers.

Other property ownership

<Individual name> and <individual name> jointly own a property located at <property address>. This is the family home where You reside.

<Individual name> owns a rental investment property located at <property address>.

Other

You have not undertaken subdivision or land development activities in the past nor plan to undertake these activities in the future.

<Individual name> is the sole director and shareholder of <entity name> trading in the <industry type>.

<Individual name> is not employed.

You lodged this private ruling application on <date>.

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 Section 195-1

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 that you are liable for GST on any taxable supplies that you make.

You make a taxable supply where you satisfy the requirements of section 9-5, which provides:

(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.

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

For the sale of the Land to be a taxable supply, all the requirements in section 9-5 must be satisfied.

The circumstances in which a supply is GST-free or input taxed are found in Divisions 38 and 40 respectively.

In your case, there are no provisions in the GST Act under which your sale of the Land would be a GST-free or input taxed supply.

You will be supplying the Land for consideration. The supply will be connected with the indirect tax zone as the Land is located in Australia. However, you are not registered for GST.

The primary issue to be resolved is whether the supply of the Landwill be made in the course or furtherance of an enterprise you carry on (paragraph 9-5(b)). If so, a further issue to be considered is whether you are required to be registered for GST.

Enterprise

Subsection 9-20(1) provides, amongst other things, that an enterprise is an activity, or series of activities, done:

(a)   in the form of a business; or

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

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 guidelines on the meaning of carrying on an enterprise.

Paragraph 1 of 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? provides that the guidelines in MT 2006/1 are considered to apply equally to the term 'enterprise' as used in the GST Act and can be relied upon for GST purposes.

Paragraphs 177 to 179 of MT 2006/1 discuss the main indicators of carrying on a business, and state:

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;

•         an intention to make a profit from the 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 of this case, we consider that the activities resulting in the sale of the Land to the acquiring authority do not reflect the indicators of a 'business' as listed above.

We now consider whether your activities will be in the form of an adventure or concern in the nature of trade (paragraph 9-20(1)(b)).

In the form of an adventure or concern in the nature of trade

Paragraph 244 of MT 2006/1 explains that 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.

Paragraph 245 of MT 2006/1 refers to 'the badges of trade' which provides a 'common sense guidance' in reaching a conclusion on whether a transaction has the characteristics of a business deal and whether an asset is held as a trading/revenue asset or a capital/investment asset held for either investment or personal enjoyment. While an activity such as the selling of an asset may not of itself amount to an enterprise, account should be taken of the other activities leading up to the sale to determine if an enterprise is carried on.

The Commissioner's view on the badges of trade in MT 2006/1 includes:

The subject matter of realisation

247. This badge of trade considers the form and the quantity of property acquired. If the property provides either an income or personal enjoyment to the owner it is more likely to be an investment than a trading asset.

The length of period of ownership

249. A trading asset is generally dealt with or traded within a short time after acquisition. ...

The frequency or number of similar transactions

251. The greater the frequency of similar transactions the greater the likelihood of trade.

Supplementary work on or in connection with the property realised

252. Improving property beyond preparing an asset for sale, to bring it into a more marketable condition and gain a better price suggests an element of trade.

The circumstances that were responsible for the realisation

253. Trade involves operations of a commercial character. As assets can be sold for reasons other than trade, the circumstances behind the sale need to be considered. For example, a quick resale may have occurred as a result of sudden financial difficulties.

Paragraph 262 of MT 2006/1 acknowledges 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 263 continues, stating that the issue to be decided is whether the activities being conducted are an enterprise in that they are of a revenue nature as they are considered to be activities of carrying on a business or an adventure or concern in the nature of trade (profit making undertaking or scheme) as opposed to the mere realisation of a capital asset.

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 provide that there may be other relevant factors outside this list that need to be weighed up in reaching an overall conclusion 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.

Paragraphs 271 to 287 of MT 2006/1 set out examples of subdivisions that are enterprises whilst paragraphs 288 to 302 set out examples of subdivisions that are not enterprises.

Application to your case

The Property was purchased with the intention to eventually build your family home however this did not eventuate. Since acquiring the Property in <year> and since the couples' children were added as joint or co-title holders in <year>, you have not built on the land, nor conducted any form of business from the Property and it has not generated any form of income. The Property has always been treated as your capital asset.

Whilst your Property has recently been rezoned, this was not initiated by you. As a result of the rezoning, you were notified by the Department of Planning, Industry and Environment, that your Property was designated for future acquisition for public purpose around the time the Property was rezoned. This prompted you to engage the services <entity name> to liaise with the acquiring authority and lodge a hardship application to allow for early acquisition.

You did not acquire any additional land to be added to the original parcel.

Subsequent to the notification from the Department of Planning, Industry and Environment, the acquiring authority made you an offer to purchase the Land. The acquiring authority is responsible to lodge a plan of subdivision with the <state> Land Registry and to complete all works and pay for all costs involved in the subdivision.

You have not undertaken subdivision or land development activities in the past nor do you plan to undertake these activities in the future.

You are not personally involved in the subdivision activities to be carried out by the acquiring authority.

On balance, having considered the facts of the case against the badges of trade and other factors listed above, we consider the activities undertaken to sell the Land to the acquiring authority do not amount to an enterprise for GST purposes pursuant to subsection 9-20(1).

As paragraph 9-5(b) is not satisfied, all the requirements for a taxable supply are not present and therefore the sale of proposed Lot <number> on Deposited Plan <number> contained within parent Lot <number> Deposited Plan <number>, known as <property address> will not be a taxable supply pursuant to section 9-5 and no GST will be payable on the sale.