Edited version of private advice

Authorisation Number: 5010084298073

Date of advice: 20 June 2022

Ruling

Subject: GST and sale of subdivided land

Question

Will the sale of your subdivided land be subject to goods and services tax (GST)?

Answer

No, the sale of your subdivided land will not be subject to GST.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

The date this ruling is issued

Relevant facts and circumstances

You are an individual who has an ABN and is registered for Goods and Services Tax (GST).

You carry on an enterprise as a Clinical Psychologist.

Third party data shows that in xxxx, you jointly owned the vacant land located at xxxxx

The property is xxx hectares.

On xxxx, you became the sole proprietor of the vacant land.

You lived in a caravan on the vacant land until your residential property was built in xxxx.

You operate your Psychology business from a different address which you rent on a commercial basis.

You intend on subdividing the existing property into three lots. Lot 1 is xxx hectare, on which your primary place of residence is located, Lot 2 is xxx hectares, and Lot 3 is xxx hectares.

You are subdividing the land so that you can pay off the mortgage on the property and to provide funds to top up your superannuation.

This property has been your primary place of residence since xxxx and will remain as such as you plan on retiring to this property.

You have not been involved in any previous subdivision or development activities.

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

Reasons for decision

Section 9-40 of the GST Act provides that you are liable for GST on any taxable supplies that you make.

Section 9-5 of the GST Act 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.

For the supply of your subdivided land to be a taxable supply, all of the requirements listed in section 9-5 of the GST Act must be satisfied.

In your situation, the supply of the subdivided land is for consideration, and is connected with Australia. You are already registered for GST for your business as a Clinical Psychologist but not in relation to property development. Whether the supply of the land is in the course or furtherance of your enterprise must be considered.

Whether the sale will be made in the course or furtherance of an enterprise that you carry on

In accordance with section 9-20 of the GST Act, an enterprise includes, amongst other things:

•         an activity or series of activities done in the form of a business

•         an adventure or concern in the nature of trade

Miscellaneous Taxation Ruling MT 2006/1 provides guidance on the meaning of enterprise for the purpose of entitlement to an Australian Business Number (ABN). Goods and Services Tax Determination GSTD 2006/6 states that MT 2006/1 can be relied on for the purposes of determining whether an entity carries on an enterprise 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 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.

Paragraphs 258 to 260 of MT 2006/1 provide that certain type of assets, such as rental properties, business plant and machinery, the family home, family cars and other assets are considered as investment assets. These assets are purchased with the intention of being held for a reasonable period of time, as income-producing assets or for the pleasure or enjoyment of the person. The mere disposal of these investment and private assets does not amount to trade. Assets can change their character from investment to trade, however these assets cannot be held at the same time for both purposes.

While an activity such as the selling of an asset may not 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 carried on.

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. Paragraph 263 continues stating that the issue to be decided is whether the activities being conducted 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.

Paragraph 266 of MT 2006/1 provides that 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. 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.

You have never carried out an enterprise of subdivision of land before. Your intention when purchasing the property was to build your primary residence. You have decided to subdivide the property and sell off the excess land in order to pay down your mortgage. The length of time you have held the property indicates that this was not a commercial enterprise. As such the sale of subdivided land is not in the course of or furtherance of an enterprise that you carry on.

As you do not satisfy all the requirements of section 9-5 of the GST Act, the sale of the subdivided land will not a taxable supply and you will not be liable for GST on the sales in accordance with section 9-40 of the GST Act.