Edited version of private advice

Authorisation Number: 1052410249464

Date of advice: 25 June 2025

Ruling

Subject: GST - residential premises

Question 1

Will 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 dwelling constructed on 30% of the land subdivided from xxxx (Property A)?

Answer 1

Yes. You will be making a taxable supply of new residential premises and therefore GST will be applicable on the sale of the Property A pursuant to section 9-40 of the GST Act.

Question 2

Are you required to register for GST pursuant to section 23-5 of the GST Act as a result of selling Property A?

Answer 2

Yes.

This ruling applies for the following period:

1 April 20XX to 30 March 20XX

The scheme commenced on:

1 April 20XX

Relevant facts and circumstances

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

You are however, listed as a director of your spouse's engineering consultancy business. This business is registered for GST.

On xxxx, you and your spouse entered into a Contract of Sale for the purchase of xxxx. This property has been your primary place of residence (PPR Property) since the time of purchase.

On xxxx, you and your child entered into a Contract of Sale for the purchase of xxxx (Property) The Property consisted of a single dwelling home which is a residential premises. The Property was purchased as tenants in common, with your child owning 30% and you owning 70%.

You and your spouse have a loan agreement (loan) with your child for your child's share of the property. The loan agreement was entered into on xxxx and agrees to loan xxxx to your child to settle 30% of the purchase price of the Property.

Under the loan agreement, your child agrees that he is liable for and, upon repayment of the loan principal, will pay all interest and any other fees incurred by the Lender (you and your spouse) on the amount of the loan.

Your child is registered for GST as a sole trader for sound engineering, however he hasn't traded in a few years. He has been registered for GST since xxxx.

The Property is currently occupied by your child and a few of their friends.

The rental amounts and costs incurred in relation to the Property follow the 70:30 ownership split, where you are entitled to 70% of the rental amount and liable for 70% of the costs.

You intend to demolish the existing dwelling at the property and subdivide the land into three lots (subdivided lots) with a 30:30:40 ratio of land.

You intend to construct three townhouses on the subdivided lots and then sell one of the townhouses built on one of the 30% lots (Property A).

The remaining two dwellings will be retained, with the dwelling on the other 30% of the land being retained by your child (Property B) as his primary place of residence and the remaining dwelling on 40% of the land being retained by you (Property C) as your primary place of residence.

Upon completion of the subdivision, your child will become sole owner of Property B and he will relinquish ownership in the other two lots. You will thereby become the sole owner of the Property A and Property C.

During the concept/design phase all costs will be split as per the 70:30 ownership. Construction may not be so even however, as the design of Property C will be different. You intend to enter into a contract with the builders for three separable portions - one for each unit. The builder will determine the split of costs, which may not be 40:30:30. Your child will pay the costs associated with the separable portion for his property, being Property B.

You will not borrow money to finance the development of the Property.

At the stage of this ruling, you have engaged an architect to prepare concept and schematic designs.

You currently are unsure what you will do with the PPR Property once you move into Property C as your primary place of residence. Your options at this stage are either to sell the PPR property as it is, or to demolish the existing dwelling on it and build a new house.

Neither you, or any related entities, are involved in construction work or property development.

Neither you, or any related entities, have ever undertaken any similar property 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 40-75

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

Reasons for decision

You are required to be registered for GST as a result of selling Property A and you will also be making a taxable supply under section 9-5 of the GST Act. Consequently, GST will be applicable on the sale pursuant to section 9-40 of the GST Act.

Detailed reasoning

Section 9-40 of the GST Act provides GST is payable on taxable supplies. Section 9-5 of the GST Act 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. There are no provisions in the GST Act that will make the supply of Property A GST-free.

Before we address whether the supply of Property A is a taxable supply, it is noted that paragraph 50 of Goods and Services Tax Ruling GSTR 2009/2 Goods and services tax: partitioning of land (GSTR 2009/2) states:

Is the subdivision of land a supply?

50. The Commissioner considers that the subdivision of land by co-owners does not constitute a supply for the purposes of GST. All that results is that the subdivided land is held under different titles by the same owners. While the effect of the subdivision is to create new rights and titles in substitution of the original rights and titles, there is no change in the ownership of the subdivided land. Accordingly, where land is jointly held, a subdivision, by itself, does not involve a transfer of any interests in the land between the co-owners.

Consistent with the view in paragraph 50 of GSTR 2009/2, the subdivision of the Property into three lots does not constitute a supply. Therefore, what needs to be considered is whether the supply of the developed property, being Property A, by you meets the requirements of a taxable supply under the GST Act.

Section 40-65 of the GST Act provides that the sale of residential premises is input taxed in certain circumstances. However, the sale is not input taxed to the extent that the residential premises are commercial residential premises or new residential premises. Section 40-75 of the GST Act outlines the meaning of new residential premises.

A new residential property is a property where any of the following apply:

•                it hasn't been sold as residential property before

•                it's been created through substantial renovations

•                new buildings replace demolished buildings on the same land

•                one of these properties listed that has been rented out for

o        less than 5 years

o        more than 5 years but it has been actively marketed for sale while it is rented.

Given Property A will be a newly constructed townhouse, it will be considered a new residential premises. Consequently, it will not be input taxed.

Based on the information provided, the sale of Property A satisfies the requirements of paragraphs 9-5(a) and 9-5(c) of the GST Act. That is, you will supply Property A for consideration and the supply will be connected with Australia as Property A is located in Australia.

Given that you are not registered for GST, it must be determined whether you are required to be registered for GST (paragraph 9-5(d) of the GST Act) and whether the supply of Property A is made in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b) of the GST Act). If either of these two paragraphs are not satisfied, the supply will 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.

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.

Paragraphs 243 to 261 of MT 2006/1, outlines the characteristics of trade, including the 'badges of trade'. They are as follows:

•                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

•                Motive

•                Trade v investment assets

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.

Paragraphs 273 to 276 and 284 to 287 of MT 2006/1 provide examples of subdivisions of land that are enterprises:

Example 29

273. Tobias finds an ocean front block of land for sale in a popular beachside town. He devises a plan to enable him to afford to live there. He decides to purchase the land and to build a duplex. He plans to sell one of the units and retain and live in the other. The object of his plan is to enable him to obtain private residential premises in an area that would otherwise be unaffordable for him.

274. Tobias carries out his plan. He purchases the land, and lodges the necessary development application with the local council. The development application is approved by the council, Tobias engages a builder and has the duplex built. He sells one unit, and lives in the other.

275. Tobias is entitled to an ABN. His intentions and activities have the appearance of a business deal. They are an enterprise.

276. Further, there is a reasonable expectation of profit or gain (see paragraphs 378 to 405 of this Ruling) as his plan has enabled him to be able to keep and live in one of the units.

Example 31

284. Prakash and Indira have lived in the same house on a large block of land for a number of years. They decide that they would like to move from the area and develop a plan to maximise the sale proceeds from their land.

285. They consider their best course of action is to demolish their house, subdivide their land into two blocks and to build a new house on each block.

286. Prakash and Indira lodge the necessary development application with the local council and receive approval for their plan. They arrange for:

•                their house to be demolished;

•                the land to be subdivided;

•                a builder to be engaged;

•                two houses to be built;

•                water meters, telephone and electricity to be supplied to the new houses; and

•                a real estate agent to market and sell the houses.

287. Prakash and Indira carry out their plan and make a profit. They are entitled to an ABN in respect of the subdivision on the basis that their activities go beyond the minimal activities needed to sell the subdivided land. The activities are an enterprise as a number of activities have been undertaken which involved the demolition of their house, subdivision of the land and the building of new houses.

Having given regard to your circumstances as a whole, we are of the opinion that your activities in respect of your proposed demolition of the house on the Property, subdivision of the land and construction of new units so far as it relates to your intention to build and sell Property A for a profit, are being done in the form of an adventure or concern in the nature of trade and will constitute an enterprise. Consequently, the sale of Property A will satisfy the requirement of paragraph 9-5(b) of the GST Act.

Section 23-5 of the GST Act considers who is required to be registered. It provides that you are required to be registered under the GST Act if:

a)             you are carrying on an enterprise; and

b)             your GST turnover meets the registration turnover threshold.

GST turnover

Subsection 188-10(1) of the GST Act, when read together with paragraph 188-10(3)(b) of the GST Act, provides that you have a GST turnover that meets the registration turnover threshold if:

a)             our current GST turnover is at or above the registration turnover threshold and the Commissioner is not satisfied that your projected GST turnover is below the registration turnover threshold; or

b)             your projected GST turnover is at or above the registration turnover threshold.

'Current GST turnover' is defined in subsection 188-15(1) of the GST Act as the sum of the values of all of your supplies made in a particular month and the preceding 11 months other than:

a)             supplies that are input taxed

b)             supplies that are not for consideration

c)              supplies that are not made in connection with an enterprise that you carry on.

'Projected GST turnover' is defined in subsection 188-20(1) of the GST Act as the sum of the values of all of your supplies made in a particular month and the following 11 months other than:

a)             supplies that are input taxed

b)             supplies that are not for consideration

c)              supplies that are not made in connection with an enterprise that you carry on.

Section 188-25 of the GST Act requires you to disregard the following when calculating your projected GST turnover:

a)             any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours; and

b)             any supply made, or likely to be made, by you solely as a consequence of:

                                 i.                  ceasing to carry on an enterprise; or

                                ii.                  substantially and permanently reducing the size or scale of an enterprise.

We have previously determined that the proposed sale of Property A is not input taxed given it is new residential premises. Further to this, the proposed sale of Property A will be made for consideration and we have determined that you are making the supply in connection with an enterprise that you carry on. Therefore, the sale price of Property A will be used to calculate GST turnover. Assuming that the sale price of Property A will exceed $75,000, you will be required to be registered for GST pursuant to section 23-5 of the GST Act.

Therefore, the requirement of paragraph 9-5(d) of the GST Act will also be satisfied.

Therefore, all the requirements of section 9-5 of the GST Act will be met in respect of the proposed sale of Property A and the sale will be a taxable supply subject to GST.