ATO determines that developer of 22 lot subdivision does not have to register for GST

12 January 2010 Topics: Tax and revenue

Cooper Grace Ward has recently received a favourable private ruling from the ATO in relation to a substantial land subdivision.

The client owns 52 acres of residential land and intends to subdivide the property into 22 allotments.

The ATO ruled that:

  • the project did not constitute an enterprise; and
  • the client will not have to pay GST on the sale proceeds.

In making its decision, the ATO was clearly influenced by Miscellaneous Taxation Ruling MT2006/1 and cases such as Statham and Anor v Federal Commissioner of Taxation and Casimaty v Federal Commissioner of Taxation in relation to whether the taxpayer’s activities amounted to the carrying on of a profit making undertaking or was only the mere realisation of a capital asset.

In deciding that the subdivision of the property was the mere realisation of a capital asset, the ATO considered it was relevant that:

  • the subdivision was an isolated transaction;
  • there was no business organisation involved;
  • any interest incurred on funds borrowed to finance the subdivision was not claimed as a business expense;
  • the level of development was limited to access roads and infrastructure required to obtain planning approval; and
  • the property was owned for 30 years prior to the decision to subdivide.

While other taxpayers cannot necessarily rely on this ruling, it does indicate that clients who undertake significant subdivision projects that involve a “mere realisation” may not be required to pay GST on sale proceeds.

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