1 Are the taxpayers carrying on an enterprise pursuant to section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in respect of the proposed sale of subdivided land situated at X?
1 No. Question 2 If the Answer to Question One is 'Yes', will the taxpayers be making a taxable supply pursuant to section 9-5 of the GST Act on the sale of any or all of the lots of land? Answer 2 Not applicable. This ruling applies for the following period : DDMM 20XX to DDMM 20XX The scheme commenced on: XXX
The taxpayers are a married couple of advanced age. They are not registered for GST, either individually or together, and are not carrying on an enterprise for the purposes of the GST Act. In XXX the taxpayers acquired a property comprising a house and land at XXX, and have lived in the house as their principal place of residence at all times since then. The property has never been used for business purposes. The size of the property is X acres. Due to their advanced ages, the taxpayers are less able and willing to maintain the property due to its size. Prompted by subdivision activities of a neighbour, the taxpayers investigated doing likewise in XXX and began the formal process of subdivision in XXX. It is the taxpayers' intention to firstly subdivide their property into four lots. It is then the taxpayers' intention to sell Lots 2, 3, and 4 as vacant land and continue to live in their home on (new) Lot 1.
The total cost of the subdivision is being funded by savings. The conduct of the subdivision is in the hands of an arms-length contractor, and is expected to be completed in XXX. The only development of the property is or was that required by the local council in order to obtain approval for the sub-dividing of the title. A local real estate agent will be engaged to sell the Lots.
A New Tax System (Goods and Services Tax) Act 1999 , sections 9-5, 9-20 and 9-40.
Liability to GST will only arise if a taxable supply (or taxable importation) is made, pursuant to section 9-40 of the GST Act. There are several components to a taxable supply. One of those components, stipulated by paragraph 9-5(a) of the GST Act, is that the supply is made in the course of furtherance of an enterprise that you [the supplier] carry on . Regardless of the other components being evident or not, if a supplier is making a supply not in the course or furtherance of an enterprise, that supply cannot be taxable. The concept of an enterprise is defined by section 9-20 of the GST Act to be an activity, or series of activities, done: a) in the form of a business; or b) in the form of an adventure or concern in the nature of trade; or c) [in other circumstances which are not relevant to the taxpayers]. As to whether the taxpayers' intention to sell Lots 2, 3, and 4 will be in the form of business or an activity in the form of an adventure or concern in the nature of trade , the Commissioner expressed his views on those examples of an 'enterprise' in
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 . (As noted at paragraphs 19 and 20 of MT 2006/1, because the term 'enterprise' is defined by section 41 of the A New Tax System (Australian Business Number) Act 1999 (the ABN Act) as having the meaning given by section 9-20 of the GST Act, the Commissioner's views as expressed in MT 2006/1 are considered to also apply to the term 'enterprise' in the GST Act, within context.) In the context of the taxpayers' circumstances, the Commissioner's views as expressed in MT 2006/1 are as follows: • The question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions (paragraph 262). • The issue to be decided is whether the activities 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 263).
• Combined, the respective decisions in Statham & Anor v FCT [1988] FCA 463; 20 ATR 228 and Casimaty v FCT [1997] FCA 1388; 37 ATR 358 informed a list of factors that provide assistance in determining such questions. If several of these factors are present it may be an indication that a business or an adventure or concern on the nature of trade is being carried (paragraph 265). • Those factors are: o there is a change of purpose for which the land is held; o additional land is acquired to be added to the original parcel of land; o the parcel of land is brought into account as a business asset; o there is a coherent plan for the subdivision of the land; o there is a business organisation - for example a manager, office and letterhead; o borrowed funds financed the acquisition or subdivision; o interest on money borrowed to defray subdivisional costs was claimed as a business expense; o there is a level of development of the land beyond that necessary to secure council approval for the subdivision; and o buildings have been erected on the land.
We are satisfied that only one of the listed factors is in evidence in the taxpayers' circumstances - there is a coherent plan for the subdivision of the land. This is insufficient to conclude that an enterprise is being carried on. Instead, it is our view that any sales of Lots 2, 3 and 4 will be part of a mere realisation of a capital asset. Support for this view is provided by the Commissioner in MT 2006/1 by way of Example 33, at paragraphs 291 to 293: Ursula and Gerald live on a 2.5 hectare lot that they have owned for 30 years. They decide to sell part of the land and apply to subdivide the land into two 1.25 hectare lots. The survey and subdivision are approved. They retain the subdivided lot containing their house and the other is sold. Ursula and Gerald are not carrying on an enterprise and are not entitled to an ABN in respect of the subdivision as the subdivision and sale are a way of disposing of some of the land on which their home is situated. It is the mere realisation of a capital asset. In all material aspects, the taxpayers' circumstances are aligned with the facts of Example 33.
In summary, therefore, it is our view that the taxpayers will not be carrying on an enterprise in subdividing their property and selling 3 of the 4 resulting lot as vacant land. As a consequence, no taxable supplies will be made.