1 Is A and B as joint tenants (you) making a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you sell Lot Y (also described as 'the back block') of the property?
1 Yes. You will make a taxable supply when you sell lot Y at the property as all elements of a taxable supply will be met. Question 2 Is the company engaged in an enterprise? Answer 2 No, based on the facts the company is not engaged in an enterprise. In this instance it is not engaged in the property development business conducted by A and B. Question 3 If you are making a taxable supply of the property described as lot Y, are you entitled to input tax credits on the acquisitions related to the construction? Answer 3 Yes, where you make taxable supplies of the property, you will be entitled to claim input tax credits to the extent of your creditable acquisitions provided you hold a valid tax invoice. Question 4 Are you required, pursuant to section 14-255 of Schedule 1 to the Taxation Administration Act 1953 (TAA), to give notification to the purchaser of the property to withhold GST on the sale? Answer 4 Yes, will be required to give notice to the purchaser that they will be required to withhold the GST. The amount to be withheld is dependent on whether the margin scheme will apply to the sale. Question 5
Is the company entitled to claim input tax credits for the GST paid on the trades/materials invoices made out to it? Answer 5 No. The company has not met the requirements for a creditable acquisition. Issue 2: Income Tax Question 6 Will the disposal of the property (Back House) be a mere realisation for income tax purposes? Answer 6 No. The disposal of the property is not a mere realisation and the net profit is treated as ordinary income and assessable under subsection 6-5(1). Question 7 If the disposal of the property (Back House) is not a mere realisation, can you use the market value of the property in calculating the net profit from the sale of the property (Back House) for the purposes of subsection 6-5(1)? Answer 7 Yes, for the purposes of determining the net profit that is assessable under section 6-5(1), you can use the market value applicable to the subdivided allotment at the time when it was ventured into the property development. Question 8 Can you access the main residence exemption if you dispose of the property (Back House)? Answer 8
Yes. However, any capital gain made from the sale of the property (i.e. CGT event A1) is reduced to the extent that the amount is included in assessable income under another provision, in your case section 6-5. This ruling applies for the following period : 1 January 2020 to 31 August 2027
Background information A and B are not registered for GST and have never been registered for GST, either individually or jointly. A and B, as joint tenants, purchased the property from a seller consisting of two individuals (who you presume were husband and wife) in 2020. In this ruling we refer to A and B as 'you'. The purchase price of the property (which did not include any GST) was $X, of which $X was payable as a deposit and the remaining $ was payable at settlement. You borrowed $X from a bank in relation to the purchase of the property in 2020. At the time of purchase, the property consisted of a X square metre block of land which had one older residential dwelling on it. The older dwelling was fully habitable at the time of purchase and included a living area, kitchen, bedrooms, bathroom, toilet and laundry. The property was zoned residential. The zoning has not changed since you acquired the property and the zoning is not about to change as far as you are aware. The title to the property was registered in your names as joint tenants in 2020 (as per the record of certificate of title, which also shows a mortgage registered to the bank).
Moving into the older dwelling and the first two electricity bills for that dwelling You moved into the older dwelling as soon the contract for the purchase of the property (dated 2020) had settled (which was on 2020 as per the settlement statement. You advised that you moved into the older dwelling in July 2020. Prior to moving into the property, you lived at X Avenue (A's parents' house) and at X Street, (a property that A had owned together with his relative - refer further below), and prior to that at XX Street, (a third party owned rental property). You advised that you: • lived in the X Street property (refer further below) from [date] to [date] (when the property was sold). • moved in to live with A's parents at X Avenue after selling the XX Street property. • briefly lived in the X Street property in [date] • moved in to live with A's parents at X Avenue after moving out of the XX Street property the first time between [dates]. • lived in the XXX Street property between [dates].
• moved in to again live with A's parents at X Avenue after moving out of the rental property, staying with them from around [dates]. • moved into the X Street property a second time in [date] and resided there until [date]. • moved into the older dwelling on the property in 2020. • the renovations for the X Street property took place between [dates] and that you lived in the X Street property while the renovations were being done. • you advised that during the period [dates], the X Street property was advertised for sale and sold. Obtaining builders' ticket In 2020, while working full time as a project manager, A obtained his own builders' ticket having recently met the qualification/eligibility requirements and thinking it might come in handy in the future if he was made redundant. The certificates and letters will go out in today's mail. The builder's ticket is 'housed' in a company called company, of which A is the sole director and sole shareholder. A is not paid any salary by the company.
A applied for the building licence in 2020 and used a consultant to assist with the application, with that consultant advising that it would be best to set up a company and apply for the licence through the company for risk mitigation purposes. The building licence was applied for once A became eligible, as he was advised that it would be best to apply before there were any possible rule changes which might result in losing his eligibility to apply. Further details about the company The company is not registered for GST and has never been registered for GST. A had no intentions of starting a business and took no steps to advertise or conduct any work using the abovementioned registration or company; but instead continued to work full-time for salary for an unrelated third-party employer. Decision to subdivide the property and build a new house on the 'back block' of the property
• In 2021, you felt that the older dwelling was too old and not fit for purpose for your upcoming family as B was expecting a child at the time. The dwelling was too small, had poor heating/cooling, and was asbestos lined. A decision was made to subdivide the property and build a new house on the 'back block' for your family to live in. • From the time that you purchased the property up until 2021, you had only intended to reside in the older dwelling and had no intention of subdividing the property. You were happy with the old house prior to expecting a child. Details about the subdivision of the property • G was engaged by you in return for a fee to attend to the subdivision application process and to deal with the relevant authorities on your behalf. • An email from G to you dated 2020, which you provided us a copy of states as follows: Hi A Sorry for the delay. It's been a bit busy. Please find attached... • Your email reply to G in 2020 states as follows: Hi G As discussed can you please proceed with submitting the subdivision application ... Thanks
• The abovementioned email correspondence is the only correspondence between you and G regarding your instructions to them about the subdivision of the property and their completion of the task (which was the only time they were engaged by you). You met at their office to discuss the details of the submission. • You did not actively participate in engaging with the local council, amongst other things in relation to the subdivision of the property. Nor did you approach any developers in relation to the subdivision of the property, and no developers approached you. Also, the property subdivision was not part of any development with neighbouring properties. • The copy of the application for approval of a subdivision you provided, was lodged with ZZ on your behalf by G. The application is dated 2020. • The subdivision plans attached to the abovementioned application when it was lodged show two proposed lots; with the fibro and tile house (older house) "to remain" on proposed lot one, and the shed on proposed lot Y "to be demolished".
• A copy of the approval (subject to conditions) given by ZZ of the survey-strata plan for the property you provided, shows an approval date of 2021 (the application receipt date is shown as 2020). • One of the conditions of the abovementioned approval was the plans for the subdivision be modified as per the attached plan dated 2021. You advised that you did not have a copy of such modified plan as it had been submitted by G; however, there would only have been very minor changes, if any, from the original plan that you provided. • Apart from surveying the property and lodging plans with the relevant authorities, no additional works were required in relation to the subdivision. Approval of the property subdivision was however subject to certain conditions, including the requirement that an additional water meter and power service to be installed.
• Of the two residential lots subdivided from the original site, the 'back block' (lot Y) is XX square metres and the 'front block' (lot X) is XX square metres. The balance of the land (lot Z) is made up of the driveway. The back block or lot Y is also described in the income tax portion of this private ruling as the 'back house'. • The neighbouring lots are of similar size as the original lot for the property used to be, although several other lots in the neighbourhood have also been subdivided. Construction of a new house on the 'back block' of the property using the company's trade account • With the idea of building a new family home on the 'back block' of the property, you thought that there would be savings to be made by doing the build yourself via the company which had the building licence and thus avoiding paying a markup to a third-party builder.
• You knew that this would also be a good way to obtain trade prices from suppliers, as trade prices are often given to building companies but not to individual members of the public. It was also administratively easier (less paperwork was involved) to get approval for the build through the company which had the building licence, rather than through an owner builder set up. • On 2021, the Council approved the building permit application for a two storey residential dwelling to be built on the property (on the 'back block'). The estimated value of the building work is stated as being $X. The form also shows that the certificate of design compliance had been issued by H on 2021. • On 5 May 2021 the company took out material damage and public liability insurance in relation to its annual building project within your state, with a retrospective start date of 2021 and an end date of 2022. • On 2021, the company took out professional indemnity insurance in relation to its project management activities at X Street, with a retroactive commencement date of 2021 and an end date 2022.
• Construction of the house on the 'back block' (lot Y) of the property began in 2021. You provided copies of the plans for this house which also show that the older house on the 'front block' of the property was to remain (the file name of the PDF document with the plans includes a date 2021). No variations were made to these house plans. • The abovementioned build was structured so that all invoices from tradespeople and other suppliers would be issued to the company. Payment of those invoices was however, more often than not, made from your personal account instead of 'running through' the company's bank account. • The company did not add any margin to the building costs (i.e., the company did not make any profit or loss from the construction of the house on the back block' of the property). • You also provided copies of two invoices and an adjustment note issued to the company in relation to the construction of the new house on the 'back block' of the property. You advised that the two invoices are from the time that construction of the new house on the 'back block' of the property commenced.
• The two abovementioned invoices were from D. The first invoice was issued on 2021 with an order and shipping date of 2021, and a delivery address of X Street. The second invoice was issued on 2022 with an order and shipping date of 2022, and a delivery address of X Street. • The abovementioned adjustment note was from TT Trade. It was issued on 2021 and was stated as relating to X Street. Decision to demolish the older dwelling and build a new house in its place on the 'front block' of the property • In 2022 you decided that you did not wish to live in the house that was under construction on the 'back block' of the property, with it becoming apparent that you needed a backyard for your child, who was born on [date] and was almost a year old by then. • Plans were submitted to the local council in 2022 to knock down the older dwelling that was on the 'front block' of the property at the time and to build a new dwelling which you and your family would live in for the foreseeable future.
• You provided a copy of the building permit issued by the council to the company on 2022 for a new two storey residential dwelling, swimming pool and swimming pool fencing. The estimated value of building work as shown on the form is $X. The form states that the certificate of design compliance was issued on 2022 by ZZ. • You advised that the new house to be built on the 'front block' of the property would have much more suitable specifications to cater for your growing family, including a bigger backyard. • You provided copies of the plans for the proposed house on the 'front block'. The plans also show the house on the 'back block' as being under construction. The file name of the PDF document with the plans includes a date 2022. Further details regarding your intentions for the property
• In relation to the older dwelling on lot X, after deciding to build a new house on lot Y being the 'back block' of the property, you had contemplated whether to sell the older dwelling, rent it or demolish it and build again. However, after realising that the house on the 'back block' of the property was not ideal for your growing family, you decided to demolish the older dwelling and build a new house in its place. • You considered demolishing the older dwelling a few months after living in it, when you realised how poor the insulation was and how cold it was during the winter and how hot it was during the summer. • You only considered building a house on the 'back block' for the first time in 2021, and you made a decision to do so around 2021. • You advised that you had originally thought that you might like to subdivide the property and sell the 'back block' without building on it, and that lodging a subdivision application would not lock you into anything. The new house constructed on the 'back block' of the property
• You provided a copy of the 'building contract' for the house (which was still under construction at that stage) being built on the 'back block' of the property. The document states that it relates to lot Y X Street, which you advised was the house constructed on the 'back block' of the property (this is also confirmed by the building plans that you provided). • The abovementioned 'building contract' is a single page document which has been signed by A on behalf of the company on 2022. The cost of the build is stated as being $X plus GST and is said to be built by A within 18 months from when the council gives approval for the building permit. The price excludes the subdivision costs, demolition works and furniture supply; it does however include surveying costs, landscaping and a swimming pool. • You later clarified that no pool was ever designed, drawn or approved in relation to the house built on the 'back block' of the property, and that the mention of a pool was simply a typo in the contract (which was copied and pasted from a template, and you forgot to take out the reference to the pool).
• The new house built on the 'back block' of the property was completed in 2022. It has a living area(s), kitchen, bedrooms, bathroom(s), toilet(s) and laundry. • You provided a copy of an excel spreadsheet itemising the actual building costs for the new house constructed on the 'back block' of the property although the spreadsheet refers to 'estimated' costs. There were no additional costs that are not listed in the spreadsheet which shows the total costs as $X (excluding GST) and $X (including GST). • Initially, you had been advised by a builder named F that the cost of constructing a new house on the 'back block' of the property would be approximately $X. Also, around 2021 when you first contemplated building on the 'back block' of the property, G advised that the cost of subdividing the property would be approximately $X. So, you allowed a total of $X for both.
• Given that sales of similar houses in the area were fetching around $X, you considered it economical to undertake the abovementioned subdivision and construction. However, the construction costs for the new house on the 'back block' of the property ended up being a lot more than had been budgeted for due to cost increases in the last two years. • The specifications of the build for the new house built on the 'back block' of the property did not change in any way after you decided that it would no longer be your 'forever home' (i.e., no extra expenses were incurred, nor was more complex work performed on the build; also, no activities were undertaken that would substantially increase the amount of money/profit from selling the house). • Once the proposed new house to be built on the 'front block' of the property has been built, you will have the new house on the 'back block' of the property cleaned and advertised for sale. To date, the house built on the 'back block' of the property has not been advertised for either sale or rent. You have been living in the house on the 'back block' of the property since it was built.
• You estimate that the new house on the 'back block' of the property will fetch some $X on sale based on recent sales of similar properties in the area. Moving out of the older dwelling and into the new house constructed on the 'back block' of the property • You and your family moved out of the older dwelling (which you stated was around 2022) and then moved into the new house built on the 'back block' of the property as soon as it was ready to be occupied (which you advised was in 2022). You moved straight into the new house built on the 'back block' of the property and did not stay anywhere else after moving out of the older dwelling. • You provided a copy of a Notice of Completion in relation to permit number ZZZ for X Street, as well as an email from you to the Council on 2023 attaching the form "relating to the recently competed property at X Street,". The form was signed on 2023 and states that the building works were completed on 2023 and that the final value of the contract was $X. The builder is listed as the company.
• You and your family are currently residing in the new house that was built on the 'back block' of the property. Demolition of older dwelling • The permit to demolish the older dwelling on the 'front block' of the property was applied for on 2022. The demolition contractor as stated on the demolition application form is C, who submitted the demolition application to the Council on your behalf. • The demolition permit was issued to C by the Council on 2022. The permit covers the full demolition of a single dwelling at X Street, and is valid until 2023. • The demolition of the older dwelling on the 'front block' of the property commenced in late 2022. Both the demolition and the clearing of the block was completed by you at your own cost. The demolition company only did the paperwork in order to obtain the licence to demolish; you undertook the demolition works in your own right (i.e., not on behalf of the company) with the help of relatives at no cost to you.
• You provided a copy of a photo taken post the abovementioned demolition and clearing of the 'front block' of the property. The photo shows a flat and empty piece of land. Construction of the new house on the 'front block' of the property You advised that construction of the new house on the 'front block' of the property commenced in or about 2023. The construction costs for the new house to be built on the 'front block' of the property will be borrowed from B's parents. According to the copy of the building plans that you provided in relation to the proposed new house to be built on the 'front block' of the property, the house will have a living area(s), kitchen, bedrooms, bathroom(s), toilet(s) and laundry. The yard will be a bit bigger than for the house constructed on the 'back block' of the property and there will also be a pool. No variations have been made to the building plans to date.
• You advised that, as well as power and water facilities, the proposed new house to be built on the 'front block' of the property will also have gas fitted during the construction phase. To date, no building contract has yet been entered into in relation to the proposed new house to be built on the 'front block'. Reason why you did not simply sell the property rather than building new houses on the property • When asked if there was any reason why you did not simply sell the property and purchase a new property rather than undertaking the subdivision, you advised that you wanted to remain in the area because it has good schools and is close to friends and family. You also advised that with property prices and demand having 'skyrocketed' over the relevant period, it would have been hard for you to secure an alternative property. Your f u ture intentions and what the property has been used for • Apart from the houses mentioned above, you have no intention of building any other dwellings in the near future, nor of moving out of the 'soon to be constructed' new dwelling on the 'front block'.
• To date, no part of the property, including any of the land or any house originally on it or built on it, has been used for any purpose other than a residence in conjunction with a residence for your family. • You and the company have no intention of performing any construction work or services in the future for a profit or otherwise. • Apart from the applications to council mentioned above, in relation to the subdivision of the property and the building of new houses on the subdivided blocks, no other applications were made to the Council in relation to the property. Employment/business history • In the last three years, A has been employed full-time as a project manager by an unrelated entity, and in the XX years prior to that A has been employed full-time by as an assistant project manager by an unrelated entity.
• In the three years 2018 to 2020, A also ran a side business as through the entity the company while working full-time. During this time, the company lodged income tax returns with income amounts not high enough to require GST registration. A established the company to conduct the side business; however, after that business activity ended, the company was 'mothballed'. • The side business work that A currently undertakes for a commercial builder and that he has undertaken in the past, relates to the building of schools and apartment blocks, etc., not residential properties. • B has been a communications manager for the last X years, having been employed by three different third-party employers in that role. Company activities and history • When A obtained his building registration, the company's name was changed. • You used the company to build your home in order to access trade prices, allowing you to buy materials for your home at much cheaper prices than otherwise possible as a member of the general public.
• The company is not registered for GST and has never been registered for GST in the past (including when it was known as another entity). • The only project that the company has any involvement in is the new house built on the 'back block' of the property. The company undertook the construction but added no margin to the costs for undertaking this project. • The only project that the company has planned for the future is the new house proposed to be built on the 'front block' of the property also known as lot X. Time spent by you on the construction • The amount of time spent by A in relation to the construction of the new house on the 'back block' of the property was approximately 10 to 20 hours per week. This involved organising materials, tradespeople and deliveries, meeting tradespeople and suppliers, as well as selecting materials. His time was mainly spent on managing the work, with subcontractors being engaged to complete the majority of the work.
• A received no wages or other payments from the company for his work. However, when the company was called another name, A did receive some payments from the company for his work. Who tradespeople invoice • All invoices relating to the construction of the new house on the 'back block' of the property were made out to the company. Suppliers/tradespeople were dealing with the company and its director A in relation to the project. Taxation returns and record keeping • To date, you have not lodged any taxation returns in relation to the expenses incurred by the company for the construction activities as you are waiting for the outcome of this ruling. The last taxation return lodged by the company is for the financial year ended 30 June 2021 and the expenses shown in it related only to the side business. • As well as keeping the invoices and the excel spreadsheet of costs relating to the subdivision and development of the property, you maintain a professional accounting system for the company. Previous property dealings
• You have not jointly, or through any entity related/associated with both of you, purchased, developed, subdivided, sold or held any property apart from that mentioned above and the following: • a property located at XX Street, that A jointly owned with his relative of X Avenue a couple of years ago. • a property located at X Street, that you previously owned in As name several years ago. • The X Street property that A previously owned with his stepfather (as tenants in common with your share being X%) was purchased on or about 2017 for $X. A's relative paid most of the purchase price and that you contributed around $X. • The abovementioned property originally had an old two bedroom, one bathroom house on it, which A's relative extended as an owner builder, adding three more bedrooms and a bathroom. You advised that you both lived in the X Street property between 2018 and 2020 • A and his relative sold the property at X Street on or about 2020 for $X. You advised that during the period 2020 to 2020, the X Street property was advertised for sale and sold.
• The XX Street property that A previously owned in his own name was purchased by him in 2013 as vacant land for $X. A constructed a two storey house on this property in which he lived in for approximately 12 months in 2017, before he sold the property in 2017 for $X. The property was never rented. Source of funds for the construction of new houses on the property • In relation to the source of the funds for constructing the new house on the 'back block' of the property, you advised that they were borrowed from B's parents. • Funds for the proposed construction of the new house on the 'front block' of the property will also be borrowed from B's parents, with the total borrowing for both houses totalling approximately $X. You advised that there was a joint account that you could access and draw down as required. • There is no intention that your partner's parents will have any proprietary interest in the new property on either part of the block.
• No written agreements were entered into in relation to the abovementioned borrowing from B's parents. The funds will be paid back in the next year or two, but no set date has been confirmed or requested by B's parents regarding repayment. • You intend to live in the unit on Lot X in the front part of the block once construction concludes.
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 11-5 A New Tax System (Goods and Services Tax) Act 1999 section 11-10 A New Tax System (Goods and Services Tax) Act 1999 section 11-15 A New Tax System (Goods and Services Tax) Act 1999 section 29-10 A New Tax System (Goods and Services Tax) Act 1999 section 29-70 A New Tax System (Goods and Services Tax) Act 1999 section 40-65 A New Tax System (Goods and Services Tax) Act 1999 section 40-75 A New Tax System (Goods and Services Tax) Act 1999 section 93-5 A New Tax System (Goods and Services Tax) Act 1999 section 188-25 A New Tax System (Goods a