Edited version of private advice

Authorisation Number: 1052233763498

Date of advice: 25 March 2024

Ruling

Subject:GST - property subdivision and the sale of land

Question

Will the sales of land, subdivided from the property located at XYZ (the Property), by ABC (you) be taxable supplies in accordance with section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and consequently subject to the withholding provisions under section 14-250 of Schedule 1 to the Taxation Administration Act 1953 (TAA)?

Answer

No. The sales of land subdivided from the Property by you will not be taxable supplies and there will be no withholding obligations with respect to the sales.

This ruling applies for the following period:

<date> to <date>.

The scheme commences on:

The date that this ruling issues.

Relevant facts and circumstances

On xxxx, you purchased the Property, located at XYZ, for the purpose of building a new family home.

The Property is zoned for residential purposes.

On xxxx, your family moved into your new home at the Property.

You have lived in your family home at the Property for the past 40 years or so.

The Property has never previously been developed by you after your house was built and has never been used for any commercial purposes during your ownership of it.

You formerly worked for XXX, most recently as a XXX. You were made redundant from your employment in xxxx. You recommenced employment with the same employer in xxx but have since retired.

You had previously registered for Australian Business Number (ABN) xxxx on xxxx, describing the nature of your business as 'House painting or decorating'.

You declared a small amount of sole trader income for the year ended xxx. However, this was the only year that you declared any business income and the ABN was subsequently cancelled on xxxx. The reason provided for the cancellation was 'Enterprise Ceased/Closed Down'.

You had previously registered for GST from xxxx. The last BAS you lodged was for the xxxx quarter. The GST registration was cancelled effective xxxx.

You are not currently registered for GST. You do not have an active ABN.

You do not currently run any businesses or enterprises.

You are now aged xx and you suffer from ill-health and the ongoing effects of a historical vehicle accident, which conditions have made it difficult for you to maintain the entire block.

You wish to remain living in your existing residence at the Property, but you need to downsize in order to adequately manage the maintenance of your house and land.

You intend to reduce the size of your holding in the Property containing your residence, which you believe will be more manageable for you. You intend to achieve this reduction by subdividing into one-acre blocks and selling 3 of those blocks.

You have not previously been involved in property development and you have not formed a business plan with respect to the subdivision but intend to use the same unrelated subdivision company that was recently used by your neighbours to subdivide their property.

You have not sought, and you will not be seeking, any additional professional advice relating to the disposal of the land which is excess to your current needs.

You do not intend to develop or improve the subdivided blocks for the purpose of maximising their land value but will complete the minimum works required by your local council to complete the proposed subdivision in preparation for the sales.

You intend to use the same real estate agent your neighbours used, to market and sell the subdivided blocks on your behalf.

The blocks to be subdivided have not yet been advertised for sale and no real-estate agent has been engaged as yet to undertake any sales activities.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999:

• section 9-5
• section 9-20
• section 23-5
• section 9-40
• section 195-1.

Taxation Administration Act 1953 section 14-250 of Schedule 1

Reasons for decision

These reasons for decision accompany the Notice of private ruling for ABC.

This is to explain how we reached our decision. This is not part of the private ruling.

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.

Question

Will the sales of land, subdivided from the property located at XYZ (the Property), by ABC (you) be taxable supplies in accordance with section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and consequently subject to the withholding provisions under section 14-250 of Schedule 1 to the Taxation Administration Act 1953 (TAA)?

Answer

No. The sales of land subdivided from the Property by you will not be taxable supplies and there will be no withholding obligations with respect to the sales.

Detailed Reasoning

Section 9-40 provides that you must pay the GST payable on any taxable supply that you make.

Taxable supply

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

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.

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

There are no provisions of the GST Act under which the sales of the blocks subdivided from the Property in question could be GST-free or input taxed.

If the Property is subdivided and the blocks excess to your requirements are sold, the supplies would consist of properties located in Australia (and therefore connected with the indirect tax zone) and the supplies would be made for consideration. Therefore, the potential sales of the blocks subdivided from the Property would satisfy the requirements of both paragraphs 9-5(a) and 9-5(c).

As you are currently not registered for GST, we need to determine whether the other two elements found at paragraphs 9-5(b) and 9-5(d), would also be satisfied. That is, whether you are carrying on an enterprise (in connection with which the supplies would be made) and whether you will be required to be registered for GST at the time of settlement of the proposed sales of the subdivided blocks.

If so, the supplies of the blocks subdivided from the Property would satisfy all requirements of section 9-5 and would likely be taxable supplies.

Are you carrying on an enterprise?

In accordance with section 9-20, an enterprise includes:

• an activity or series of activities done in the form of a business (paragraph 9-20(1)(a));
• an adventure or concern in the nature of trade (paragraph 9-20(1)(b)); or
• an activity or series of activities done on a regular or continuous basis in the form of a lease, licence or other grant of an interest in property (paragraph 9-20(1)(c)).

The phrase 'carry on' in the context of 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 (MT2006/1) provides the Commissioner's view on the meaning of 'enterprise' for the purposes of entitlement to an ABN.

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 discussion in MT 2006/1 applies equally to the term 'enterprise' as used in the GST Act and can be relied on for GST purposes.

In the form of a business

Paragraphs 170 to 179 of MT 2006/1 discuss factors to consider when determining whether an activity or series of activities are done in the form of a business.

Paragraph 178 of MT 2006/1, with reference to Taxation Ruling 97/11 Income tax: am I carrying on a business of primary production? lists the following indicators of carrying on a business:

• a significant commercial activity;
• an intention of the taxpayer to engage in commercial activity;
• an intention to make a profit from the activity;
• the activity will be profitable;
• the recurrent or regular nature of the activity;
• the activity is systematic, organised and carried on in a business-like manner and records kept;
• the activities are of a reasonable size and scale;
• a business of product; and
• the entity has relevant knowledge or skill.

Paragraph 179 of MT 2006/1 explains that there is no single test to determine whether a business is being carried on. Whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing up all the relevant indicators.

Given the facts of this case, we consider that the proposed sales of the blocks subdivided from the Property do not display the characteristics of a 'business' as listed above.

However, 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.

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.

Therefore, we also need to consider the extended definition of 'enterprise' and whether your subdivision activity falls under the form of 'an adventure or concern in the nature of trade'. MT 2006/1 provides guidance on the meaning of this expression.

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

An 'adventure or concern in the nature of trade' refers to transactions that have a commercial nature which are entered into for a profit-making purpose.

Paragraph 245 of MT 2006/1 refers to 'the badges of trade' while paragraphs 247 to 257 consider the six badges of trade being:

• the subject matter of realisation;
• the length of period of ownership;
• the frequency or number of similar transactions;
• supplementary work on or in connection with the property realised;
• the circumstances that were responsible for the realisation; and
• motive.

When examining your case in light of these factors, we have considered the following information:

The subject matter of realisation

You acquired the Property in xxxx and have used it as your residential premises ever since. The Property has not been used for any commercial purpose during this time.

The length of ownership

You have owned the Property for more than 40 years.

The frequency and number of similar transactions

You have not previously undertaken a sale of this nature.

Supplementary work on or in connection with the property realised

Although you have recently consulted with your neighbours and the local council in relation to the potential subdivision of blocks from the Property, you have not yet undertaken the proposed subdivision works or marketed any land for sale. You will only be undertaking the minimum works required by the authorities to accomplish the proposed subdivision.

The circumstances that were responsible for the realisation

You have decided to sell off parts of the Property due to your advancing age and ill health, as its present size is too large for you to adequately maintain. The payments you receive from the sales will go towards funding your retirement.

Motive

Your motive in relation to the proposed subdivision of the Property is to allow you to remain living in your family home, while reducing the amount of land around your residence that you will need to maintain. Although a profit will result from sales of the blocks subdivided from the Property, the length of time of ownership and your initial intention in relation to it, does not indicate that your intention in relation to the Property was a profit making one.

Further, the commentary in MT 2006/1 around 'one-off' property sales includes the following relevant information and examples which closely align to your circumstances:

Isolated transactions and sales of real property

262. The question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions.

263. The issue to be decided is whether the activities 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. ...

264. The cases of Statham & Anor v. Federal Commissioner of Taxation (Statham) and Casimaty v. FC of T (Casimaty) provide some guidance on when activities to subdivide land amount to a business or a profit-making undertaking or scheme. In these cases, farm land was subdivided and sold. Minimal development work was undertaken to meet council requirements and to improve the presentation of certain allotments. On the particular facts of these cases the courts held that the sales were 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 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.

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.

...

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.

...

Example 35

297. Oliver and Eloise have lived on a rural property, Flat Out for the last 30 years. They live a self-sufficient lifestyle. As a result of a number of circumstances including their advancing years, Oliver's deteriorating health, growing debt and drought conditions they decide to sell.

298. Oliver and Eloise put Flat Out on the market and are unable to find any buyers. They then receive advice from the real estate agent that they may be able to sell smaller portions of it. They initially arrange for council approval to subdivide part of Flat Out into 13 lots. They undertake the minimal amount of work necessary and sell the lots. They continue to live on the remaining part of their property.

299. A few years later Oliver and Eloise decide to sell some more land to meet their increasing debt obligations. They arrange for council approval to subdivide another part of Flat Out into four lots. Again they undertake the minimal amount of work necessary to enable the lots to be subdivided and arrange for the real estate agent to sell these lots.

300. Three years later Oliver's and Eloise's personal and financial circumstances are such that they again decide to sell some more land. They arrange for further council approval to subdivide part of their remaining property into three lots. Again they undertake the minimal amount of work necessary to enable the lots to be sold and arrange for the real estate agent to sell the lots.

301. Over the years involved Oliver and Eloise have subdivided 30% of Flat Out. They continue to live on the remaining part of their property.

302. Oliver and Eloise are not entitled to an ABN as they are not carrying on an enterprise. They are merely realising a capital asset. In this example the following factors are relevant:

• There is no change of purpose or object with which the land is held - it has remained their home.
• There is no coherent plan for the subdivision of the land - the subdivision has been undertaken in a piecemeal fashion as circumstances change.
• A minimal amount of work has been undertaken in order to prepare the land for sale. There has been no building on the subdivided land. The only work undertaken was that necessary to secure approval by the council for the subdivision.

Weighing the factors outlined at paragraph 265 of MT 2006/1 (above) against the facts of your case and given the similarity of your circumstances to the above examples, we do not consider that your proposed activities to subdivide and sell some land from the Property would constitute an adventure or concern in the nature of trade.

As such, you will not be carrying on an 'enterprise' for the purposes of GST in relation to the potential sales of the blocks subdivided from the Property. You will be merely disposing of a private asset due to a change in your circumstances.

Therefore, those potential sales will not be taxable supplies under section 9-5 of the GST Act.

GST registration

Section 23-5 provides that you are required to be registered for GST if:

• you are carrying on an enterprise; and
• your GST turnover meets the registration turnover threshold.

As detailed above, we do not consider that the potential sales of blocks subdivided from the Property would constitute an enterprise for GST purposes. Therefore, you would not be required to be registered for GST.

GST withholding tax

As there will be no taxable supplies from the sales of the subdivided blocks of land, there will be no GST withholding obligation under section 14-250.

Conclusion

We have determined that you are not carrying on an enterprise and that your proposed activity of selling blocks subdivided from the Property will not be done in the furtherance of an enterprise.

Therefore, you are not required to be registered for GST, you will not be liable for GST on the sales in accordance with section 9-40 and the GST withholding provisions under section 14-250 of Schedule 1 to the TAA will not apply in relation to the proposed sales.