1 Is the sale of the Vacant, Subdivided Lot located at XXXX, a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
No Question 2 Are you required to be registered for GST pursuant to section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? Answer No This ruling applies for the following period : 14 August 2023 to 14 August 2027 The scheme commences on: 14 August 2023
XX and XX (You) are not registered for GST as a partnership or individually, nor have you been registered in the past. In MM YYYY, you became aware that your neighbour was interested in selling their house. This presented a rare and unique opportunity to purchase a property big enough to build a large family home that could also accommodate XX's elderly parents (relatives). Alternatively, the property could also be subdivided into two lots, to enable both you and your relatives to build your respective family homes adjacent to each other. Having your relatives located at the adjacent property would enable you to care for XX's elderly parents who have required more daily assistance following her mother's fall in MM YYYY. You purchased the property, located at XXXX (the Property), on a date (settlement date) as joint tenants for an amount of X. The Property was formally known as Lot XXXX on Plan of Subdivision X contained in Certificate of Title XXXX.
When the Property was purchased, it was zoned Residential A and comprised approximately X square metres of land and included a rundown, split-level, wooden house constructed circa 1960's. The main living level contained three bedrooms, a bathroom, kitchen and living/dining area and the lower level had a garage, rumpus room, laundry and small bathroom. You sold your previous, principal place of residence, located at XXXX, on a date for $X to help fund the purchase of the Property and the construction of your new family home. In addition, a loan was obtained from the bank X and on a date (since lodging the private ruling application) you entered into a contract for the sale of your investment property located at XXXX, to provide further funds The Property was used as your principal place of residence until the existing dwelling was demolished in June 2023. Development/subdivision
Following discussions with your relatives (after they were provided with advice by their Financial Advisers), you decided to demolish the existing dwelling, subdivide the block into two lots and sell the smaller vacant lot to your relatives. This would allow them to construct their home adjacent to you, on land that belonged to them. You engaged the services of a building designer who drafted both house plans and liaised with a town planner and other consultants. The town planner lodged the development application with the City Council, on your behalf, in MM YYYY. The development permit for the subdivision of the block and construction of two dwellings on the land was granted on a date. You are part way through an application to a Utility Provider to update sewer and storm water utilities. After this has been constructed, a surveyor will be engaged to survey the land, lay pegs and lodge an application with the Titles office for the land to be subdivided. You expect the subdivision to be completed in the next two to three months. You provided a table outlining the works undertaken and costs incurred to date in the development/subdivision of the Property. Proposed lots
Lot 1 will comprise of a site area of approximately X square metres. You intend to retain this lot to construct your primary residence. Lot 2 will comprise of a site area of approximately X square meters. You intend to sell this smaller lot to your relatives to allow then to build their primary residence adjacent to yours. This lot will be referred to as the 'Vacant, Subdivided Lot' for the purposes of this ruling. You expect to sell the Vacant, Subdivided Lot to your relatives for an amount of between $X and $X. The contract of sale has not been drafted as the subdivision has not yet been finalised. You have not undertaken subdivision or land development activities in the past nor plan to undertake these activities in the future. Other property ownership You provided a table outlining your current and prior property ownership (sole, jointly and beneficially)
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 23-5 A New Tax System (Goods and Services Tax) Act 1999 Division 38 A New Tax System (Goods and Services Tax) Act 1999 Division 40 A New Tax System (Goods and Services Tax) Act 1999 section 195-1
In this ruling, • unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) • all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act. • all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website ato.gov.au Question 1 Is the sale of the Vacant, Subdivided Lot located at XXXX, a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? Detailed reasoning Goods and services tax (GST) is payable on taxable supplies. Section 9-5 states that 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. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.
For the sale of the property to be a taxable supply, all the requirements in section 9-5 must be satisfied. The circumstances in which a supply is GST-free or input taxed are found in Divisions 38 and 40 respectively. In your case, there are no provisions in the GST Act under which your sale of the proposed Vacant, Subdivided Lot would be a GST-free or input taxed supply. You will be supplying the Vacant, Subdivided Lot for consideration. The supply will be connected with the indirect tax zone as the land is located in Australia. However, you are not registered for GST. The primary issue to be resolved is whether the supply of the Vacant, Subdivided Lotwill be made in the course or furtherance of an enterprise you carry on (paragraph 9-5(b)). If so, a further issue to be considered is whether you are required to be registered for GST. Enterprise Subsection 9-20(1) provides, amongst other things, that an enterprise is an activity, or series of activities, done: (e) in the form of a business; or (f) in the form of an adventure or concern in the nature of trade. 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 guidelines on the meaning of carrying on an enterprise. Paragraph 1 of 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 guidelines in MT 2006/1 are considered to apply equally to the term 'enterprise' as used in the GST Act and can be relied upon for GST purposes. Paragraphs 177 to 179 of MT 2006/1 discuss the main indicators of carrying on a business, and state: 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;
• an intention to make a profit from the 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.
Given the facts of this case, we consider that the activities resulting in the sale of the Vacant, Subdivided Lotto your relatives do not reflect the indicators of a 'business' as listed above. We now consider whether your activities will be in the form of an adventure or concern in the nature of trade (paragraph 9-20(1)(b)). In the form of an adventure or concern in the nature of trade Paragraph 244 of MT 2006/1 explains that 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.
Paragraph 245 of MT 2006/1 refers to 'the badges of trade' which provides a 'common sense guidance' in reaching a conclusion on whether a transaction has the characteristics of a business deal and whether an asset is held as a trading/revenue asset or a capital/investment asset held for either investment or personal enjoyment. 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. The Commissioner's view on the badges of trade in MT 2006/1 includes: The subject matter of realisation 247. This badge of trade considers the form and the quantity of property acquired. If the property provides either an income or personal enjoyment to the owner it is more likely to be an investment than a trading asset. The length of period of ownership 249. A trading asset is generally dealt with or traded within a short time after acquisition. ... The frequency or number of similar transactions 251. The greater the frequency of similar transactions the greater the likelihood of trade. Supplementary work on or in connection with the property realised
252. Improving property beyond preparing an asset for sale, to bring it into a more marketable condition and gain a better price suggests an element of trade. The circumstances that were responsible for the realisation 253. Trade involves operations of a commercial character. As assets can be sold for reasons other than trade, the circumstances behind the sale need to be considered. For example, a quick resale may have occurred as a result of sudden financial difficulties. 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 264 of MT 2006/1 discusses two seminal cases in this area: Statham & Anor v Federal Commissioner of Taxation 89 ATC 4070 ( Statham) and Casimaty v FC of T
97 ATC 5135 (Casimaty) . Paragraph 265 of MT 2006/1 extracts the key elements of both cases and provides a list of factors that can be used to assist in determining whether isolated property transactions are an adventure or concern in the nature of trade or a mere realisation of a capital asset: 265. From the Statham and Casimaty cases a list of factors can be ascertained that provide assistance in determining whether activities are a business or an adventure or concern in the nature of trade (a profit-making undertaking or scheme being the Australian equivalent, see paragraphs 233 to 242 of this Ruling). If several of these factors are present it may be an indication that a business or an adventure or concern in the nature of trade is being carried on. These factors are as follows: • there is a change of purpose for which the land is held; • additional land is acquired to be added to the original parcel of land; • the parcel of land is brought into account as a business asset; • there is a coherent plan for the subdivision of land;
• there is a business organisation - for example, a manager, office and letterhead; • borrowed funds financed the acquisition or subdivision; • interest on money borrowed to defray subdivisional costs was claimed as a business expense; • there is a level of development of the land beyond that necessary to secure council approval for the subdivision; and • buildings have been erected on the land. In addition to the above, paragraphs 266 and 267 of MT 2006/1 provide that there may be other relevant factors outside this list that need to be weighed up in reaching an overall conclusion and that no individual factor is determinative to the question of whether an enterprise is present:
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. 267. No two cases are likely to be exactly the same. For instance, while the conclusions reached in the Statham and Casimaty cases were similar, different facts and factors were considered to reach the respective conclusions. Paragraphs 271 to 287 of MT 2006/1 set out examples of subdivisions that are enterprises whilst paragraphs 288 to 302 set out examples of subdivisions that are not enterprises. Application to your case You purchased the Property, with an existing residential dwelling, because it was suitable to subdivide the land into two lots.
Although the Property was your primary residence for a short period of time, you demolished the existing dwelling and have taken steps to subdivide the block. You intend to retain the larger subdivided lot for your personal use to construct your future family home, which will be your principal place of residence. The second Vacant, Subdivided Lot will be sold to your elderly relatives for the purpose of constructing their principal place of residence adjacent to your home. This will enable you to provide the necessary care that they need. The sale of this lot will therefore not be made with the primary intention of making a profit. You funded the subdivision of the Property with funds you realised from the sale of your previous principal place of residence. Whilst you kept records of your expenditure to subdivide the Property, the Property has not been brought into account as a business asset and has always been treated as your capital asset.
You have not undertaken subdivision or land development activities in the past nor do you plan to undertake these activities in the future. Whilst there appears to be a coherent plan for the subdivision of the Property, your personal involvement in the development has been minimal. You engaged the services of consultants to facilitate and conduct all the subdivision works. In this case, the activities to be undertaken to subdivide the Property, are only at a level required to secure council approval for the subdivision. You did not purchase additional land to add to the original parcel and you have not, nor do you intend to construct any buildings on the Vacant, Subdivided Lotbefore selling it to your relatives. On balance, having considered the facts of the case against the badges of trade and other factors listed above, we consider the activities you have undertaken and propose to undertake in subdividing the Property and the subsequent sale of the Vacant, Subdivided Lotto your relatives, does not amount to an enterprise for GST purposes pursuant to subsection 9-20(1).
As paragraph 9-5(b) is not satisfied, all the requirements for a taxable supply are not present and therefore the sale of the Vacant, Subdivided Lot located at XXXX will not be a taxable supply pursuant to section 9-5 and no GST will be payable on the sale. Question 2 Are you required to be registered for GST pursuant to section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? Detailed reasoning Section 23-5 states that you are required to be registered for GST if: (a) you are carrying on an enterprise; and (b) your GST turnover meets the registration turnover threshold (in your case the threshold is $75,000). As determined above, the activities you have undertaken and propose to undertake in the subdivision of the Property and the subsequent sale of the Vacant, Subdivided Lotto your relatives, does not amount to an enterprise for GST purposes under section 9-20. As you are not carrying on an enterprise you are not required to be registered for GST pursuant to section 23-5.