Edited version of private advice

Authorisation Number: 1052246236446

Date of advice: 2 May 2024

Ruling

Subject: GST - sale of vacant land

Question

Will the sale of the interest in the vacant land, together with the assignment of a planning permit,be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

The scheme commences on:

The date of issue of this private ruling.

Relevant facts and circumstances

You purchased vacant land with three titles.

You are registered for GST. You thought there might be a chance that you would develop the land if the planning process went smoothly and market conditions were conducive to selling the individual lots. Therefore, you registered for GST to avoid backdating at a later time. However, the process has taken too long, the financial pressure, including further development costs has built up and the current market is slow. As such, it will take a long time to sell the subdivided lots, so you are planning to sell the whole of the vacant land.

The land has been vacant since the date of acquisition. It has not been marketed for sale since purchase.

You have requested rezoning the land from special use to residential and made a town planning application for a subdivision permit. The costs of the application to council were funded by unit holders' loans to the unit trust.

You provided a masterplan as part of your private ruling application. The master plan was prepared by an architect but is not a plan of subdivision.

The rezoning and the subdivision permit will offer certainty and less risk for the potential purchasers. The value will be higher after obtaining the subdivision permit and it will also be easier to sell.

During the approval process, council required you to enter into an agreement in order to proceed with the rezoning and permit application. The agreement required you to transfer the bushland at the north part of the land to the council to be used as a public open space.

You engaged a land surveyor to prepare the plan of subdivision to consolidate the three lots and subdivide into two lots.

You now hold one lot which is lot 1.

The rezoning and subdivision permit will be approved by the end of 2024.

There isn't any development activity such as construction or improvement on the site.

You intend to sell the vacant land with the subdivision planning permit in place.

You not undertaken any subdivision activities or any business of land development and you will not undertake any subdivision activities or any business of land development in the future.

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 195-1

Reasons for decision

Section 9-5 provides 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 for GST.

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

Supplies that are GST-free or input taxed are contained in Division 38 and Division 40 respectively. Your supply of the land will not fall within provisions contained in either Division and, therefore, will not be GST-free or input taxed.

In this instance, your supply of the land will be made for consideration, is located in the indirect tax zone (Australia) and you will be registered for GST as at the date of your supply.

Therefore paragraphs 9-5(a), 9-5(c) and 9-5(d) will be satisfied.

Given the above, the remaining issue is whether your supply of the land was made in the course or furtherance of the enterprise that you carry on (paragraph 9-5(b)).

Miscellaneous Tax 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, at paragraph 270 states:

Land bought with the intention of resale

270. In isolated transactions, where land is sold that was purchased with the intention of resale at a profit (which would be ordinary income) the Commissioner considers these activities to be an enterprise. This would be so whether the land was sold as it was when it was purchased or whether it was subdivided before sale. An enterprise would be carried on in this situation because the activities are business activities or activities in the conduct of a profit making undertaking or scheme and therefore an adventure or concern in the nature of trade.

You purchased vacant land with the intention of developing it and applied for rezoning and a subdivision permit. This means that the land was bought as a trading asset because profit-making was the original purpose of the undertaking. The fact that the planning process did no go smoothly and has taken longer than expected, does not change the conclusion that the englobo sale of the land is the sale of a trading asset.

The term "carrying on" an enterprise is defined in section 195-1 to include doing anything in the course of the commencement or termination of the enterprise. An entity ceases carrying on an enterprise when it concludes doing everything in the course of terminating its enterprise.

We consider your sale of the land is an activity done in the course of the termination of the enterprise. That is, prior to the settlement date, you will still be considered as carrying on the enterprise.