Edited version of private advice

Authorisation Number: 1052256921378

Date of advice: 3 June 2024

Ruling

Subject: GST - sale of property

Question 1

Will the sale of the subdivided properties constitute a taxable supply and therefore be subject to GST?

Answer

No, the sale of the properties will not be subject to GST as they are not a taxable supply.

This ruling applies for the following periods:

Year ending 30 June 2024

Year ending 30 June 2025

The scheme commenced on:

1 July 2023

Relevant facts and circumstances

You are an individual; you do not have an ABN and are not registered for GST.

You purchased the property located at xxx (the property) on xx October 19XX.

The property has been your principal place of residence since purchase.

You are XX years of age and need to downsize your principal place of residence.

The property has been valued at $XX million.

The property was listed for sale in 20XX.

You have not received any offers for the property.

There is a large gas line easement on the property.

Due to local council X acre block RU-2 Rural zoning restrictions the property can only be divided into 2 Lots.

You started the sub-division application process in 20XX.

You have filed a DA application DPxxx with xxx City Council to split the property into 2 Lots and sell them individually (the sub-division).

The sub-division will result in:

Lot 1xx - xxx Ha and will contain the house is valued at $XX million.

Lot 1x1 - xx Ha will be a vacant lot valued at $XX million.

XXX prepared the plan and application for this subdivision for a fee of approximately $XX.

This sub-division has been approved by xx Council but has not been registered.

Both Lots are listed for sale.

You have received one offer for the unregistered Lot 1x1 for $XX million.

You have accepted this offer.

The value of the entire property is equal to the value of the sum of the two Lots. No value is added by the sub-division

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 section 23-5

Reasons for decision

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), an entity makes a 'taxable supply' where the supply:

1. is made for consideration; and

2. is made in the furtherance of an enterprise that you carry on; and

3. is connected with the indirect tax zone; and

4. is made by a supplier who is registered, or required to be registered, for GST.

If Lot 1x1 were to be sold, the supply would consist of a property which is located in Australia and the supply would be made for consideration. Therefore, the sale of Lot 1x1 would satisfy two elements outlined above (1&3). Accordingly, we need to determine whether the other two elements (2&4) would also be satisfied. If this were the case, the supply of the property would satisfy all requirements of section 9-5 of the GST Act and would be a taxable supply.

You currently don't have an ABN.

Are you carrying on an enterprise?

The term enterprise is defined for GST purposes in section 9-20 of the GST Act and includes, among other things, an activity or series of activities done:

•         in the form of a business (paragraph 9-20(1)(a)) or

•         in the form of an adventure or concern in the nature of trade (paragraph 9-20(1)(b)).

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 (MT 2006/1) provides the Tax Office 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 the 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 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 states 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 all the relevant indicators.

Paragraph 16 of TR 97/11 discusses that the indicators must be considered in combination and as a whole. Whether a business is being carried on depends on the 'large or general impression gained' from looking at all the indicators, and whether these factors provide the operations with a 'commercial flavour'. Paragraph 17 of TR 97/11 further states that subject to all the circumstances of a case, where an overall profit motive appears absent and the activity does not look like it will ever produce a profit, it is unlikely that the activity will amount to a business.

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

Paragraphs 262 to 302 of MT 2006/1 specifically consider isolated transactions of sales of real property. Paragraph 263 of MT 2006/1 provides that the issue to be decided is whether these activities are of a revenue nature (that is, have the characteristics of a business deal) and therefore an enterprise. Where they are not of a revenue nature, then the transaction could be a mere realisation of a capital asset. The activities which are a mere realisation of a capital/investment asset are not a business or an adventure or concern in the nature of trade and therefore no enterprise is being carried out.

Paragraph 265 of MT 2006/1 outlines some factors which could determine whether or not the activity is done in the form of a business or in the form of an adventure or concern in the nature of trade. They are:

• purpose for which the land is held
• whether additional land is acquired
• land is brought into account as a business asset
• a coherent plan for the subdivision of the land or carrying of a business or trade
• whether there is a business organisation
• financed of the acquisition or subdivision through business loans
• interest on loans claimed as a business expense
• development of the land, and
• buildings or structures erected on the land.

In determining whether activities relating to isolated transactions are an enterprise or the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each case. 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.

Paragraphs 247 to 261 of MT 2006/1 outline some factors to determine whether the sale of an asset could be considered as a mere realisation of a capital or investment asset. The factors are:

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

Application to your situation

Given the facts of this case, we consider that the activity to subdivide the property, applying for a separate title and selling the vacant land does not display the indicators of a 'business' as listed above.

The subject matter of this transaction is a mere realisation of a capital asset. The land was held for over 2x years as your principal place of residence. No additional land was purchased throughout this time in connection with this block. This is an isolated transaction and there has been minimal commercial activity to effect the subdivision. There has been no supplementary work carried on in connection with the property.

Furthermore, the definition of the term 'enterprise' excludes an activity or series of activities done by an individual without a reasonable expectation of profit or gain.

While an activity such as the selling an asset may 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 or would be being carried on.

You originally purchased the property in 19XX, which included a residential premises, with the intention of this being your primary residence. The subsequent decision to subdivide the property in 202x was not conducted in a business-like manner as there was no business plan, the property was not bought into account as a 'business' asset and expenses have not been claimed as business expenses.

In this case, an examination of the facts concludes that the activities conducted on the Property were done primarily to enable a sale with a view to downsize your principal place of residence.

Summary

Given the above, we do not consider that your activities constitute an adventure or concern in the nature of trade and, as such, are not an 'enterprise' for the purposes of GST. Rather, they are activities undertaken in order to progress a sale to enable you to downsize your principal place of residence. Therefore, the sale of lot 1x1 and 1xx are considered a mere realisation of a capital asset.

GST registration

Section 23-5 of the GST Act provides that you are required to be registered for GST if you carry on an enterprise and your GST turnover meets the registration turnover threshold (currently $75,000).

As mentioned above, it is considered that the sale of the property is a mere realisation of a capital asset and would not constitute an enterprise for GST purposes. As such you are not required to be registered for GST.

Conclusion

The sale of the Property will not be a taxable supply as all of the criteria required under section 9-5 of the GST Act have not been satisfied.