Edited version of private advice

Authorisation Number: 1052399203148

Date of advice: 22 May 2025

Ruling

Subject: GST - sale of subdivided lot

Question

Will xxxx (collectively, you) be liable to pay GST pursuant to section 9-40 of A New Tax System (Goods and Services Tax) Act 1999 on the sale of a subdivided lot comprising vacant land (Lot) at xxxx (Property)?

Answer

No. You will not be liable to pay GST on the sale of the Lot under section 9-40 of the GST Act as the sale is not made in the course or furtherance of an enterprise that you carry on.

This ruling applies for the following periods:

1 July 20YY to 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

Individual A and Individual B (collectively, you) are not registered for GST.

On xxxx, Individual A entered into a Contract of Sale for the purchase of xxxx (Property A). You occupied this premises as your principal place of residence.

On xxxx, you entered into a Contract of Sale for the purchase of xxxx (the Property).

Your intention at the time of purchase was to keep the Property as a rental investment property until you had saved enough money to subdivide and build your family home on a potential rear lot. The Property was leased out for a period of approximately XX months.

In xxxx, you applied for subdivision of the Property and had preliminary plans drawn for a dwelling to be built on the rear lot.

You originally hoped that the completion of the subdivision process would be achieved within 12 to 18 months, and you would then be able to commence building your family home. However, you encountered many financial and administrative hurdles including increased building costs and lead time to satisfy the requirements. This meant that you decided to sell Property A and move into the existing dwelling at the Property to minimize costs and build up your cash base to complete all the requirements for subdivision.

You engaged a surveyor to assist you with the subdivision process as you were told by the designer who drew your preliminary rear lot plans that this is the appropriate method. The surveyor handled submission of the paperwork, but you completed the work without any additional support in order to try and save money for the build which did not eventuate.

The subdivision process required you to undertake several works including plumbing works (connection of sewage), connection of underground power, removal of the old septic sewage system and clearing of the block.

You also paid for an NBN connection for the rear lot and connected a new sewer junction line (instead of using the existing sewage connection from the front house). These were extra costs outside of the standard subdivision requirements.

You both lived in Property A as a primary place of residence from the date it was purchased until xxxx, at which point you moved out of Property A and moved into the Property.

Property A was leased out during the period of approximately six months, which was the period between you moving into the Property and the sale of XXXX Street.

On xxxx, Individual A entered into a Contract of Sale for the sale of Property A.

You are now in a position three years later where the subdivision of the Property is yet to be concluded and all the requirements to do so have been far more expensive and time-consuming than you had originally thought.

Your titles are currently waiting for approval. Once these titles are approved, you will be looking to sell the properties as soon as you can.

Given your stage in life, you would like to sell both the rear lot and the existing dwelling and move somewhere where you can start the next phase of your lives.

Initially, an investment loan agreement was entered into for the purchase of the property as you were living in Property A at this point. The loan was then changed to a standard home loan shortly after moving into the Property.

Neither you, or any related entity, is involved in construction or property development.

Neither you, or any related entity, has completed any similar developments previously.

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

A New Tax System (Goods and Services Tax) Act 1999 section 188-10

A New Tax System (Goods and Services Tax) Act 1999 section 188-15

A New Tax System (Goods and Services Tax) Act 1999 section 188-20

A New Tax System (Goods and Services Tax) Act 1999 section 188-25

Does Division 165 apply to this private ruling?

Division 165 of the A New Tax System (Goods and Services Tax) Act 1999 is a general 'anti-avoidance' rule that can apply in certain circumstances if you or another entity obtains a GST benefit from a scheme that you entered into or carried out for the main purpose of obtaining a GST benefit, or allowing another to obtain one.

It may also apply in some cases where the GST benefit arises as a principal effect of a particular scheme. An entity can get a 'GST benefit' under the GST, Luxury Car Tax or Wine Equalisation Tax laws.

If Division 165 applies, the benefit can be cancelled. For example, we might increase the net amount for a particular tax period.

Unless your private ruling specifically discusses Division 165, we have not considered the application of the anti-avoidance provisions to your case.

If you want us to rule on whether Division 165 applies in your circumstances, contact your contact officer to find out what details we will need to make the private ruling.

Reasons for decision

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 for GST

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

Based on the information provided, the sale of the Lot satisfies the requirements of paragraphs 9-5(a) and 9-5(c) of the GST Act. That is, you will supply the Lot for consideration and the supply will be connected with Australia as the Lot is located in Australia. Furthermore, the sale of the Lot in the circumstances described is neither GST-free nor input taxed.

Given that you are not registered for GST, it must be determined whether you are required to be registered for GST and whether the supply is made in the course or furtherance of an enterprise that you carry on for the sale of the Lot to be a taxable supply under section 9-5 of the GST Act. If either of these two limbs are not satisfied however, the supply would not be a taxable supply.

Whether the sale is made in the course or furtherance of an enterprise that you on

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

c)            on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property; or

d)            by the trustee of a fund that is covered by, or by an authority or institution that is covered by,

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.

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.

Where in considering these indicators of carrying on a business it is concluded that the activities undertaken do not amount to being in the form of a business, we will have to consider if the activities are conducted in the form of an adventure or concern in the nature of trade.

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.

Further, paragraph 266 of MT 2006/1 states that:

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.

Having given regard to your circumstances as a whole, we are of the opinion that your activities in respect of your proposed subdivision and sale of the Lot do not constitute an enterprise. As such, based on your circumstances as provided, paragraph 9-5(b) of the GST Act is not met and subsequently we do not need to determine whether you are required to be registered for GST. The consequence of this is that your sale of the Lot comprising vacant land would not be a taxable supply and no GST is applicable to it pursuant to section 9-40 of the GST Act.

Additional information

The decision in this private ruling is based strictly on the circumstances you have provided.

Worth noting is that MT 2006/1 provides that assets can change their character from investment, which is capital in nature, to trade and therefore revenue in nature (paragraphs 258 to 260). If an entity's activities on an objective assessment have the characteristics of trade, the entity's motive is not relevant (paragraph 254). The characteristics of trade are explained in paragraphs 243 to 261 and include the length of period of ownership and the frequency or number of similar transactions. In particular, attention is drawn to paragraph 251 of MT 2006/1 which states:

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

Therefore, any future supplies of property may be subject to a different GST treatment than that of the sale of the Lot.