When is a small land developer carrying on an enterprise?

06 August 2009 Topics: Tax and revenue, Property and planning law

We published a legal alert written on 28 October 2008 titled “Small land developers can have their cake and eat it too”.

In this alert we reported on a Cooper Grace Ward client who had received determinations from the ATO that the development of their residential acreage into 36 allotments:

  • was the mere realisation of a capital asset (which meant the profits were exempt from tax); and
  • did not amount to carrying on an enterprise (which meant they did not have to pay GST on sales).

In making their decision on the GST issue, the ATO was clearly influenced by the position they had adopted in Miscellaneous Taxation Ruling MT 2006/1, that a project that is no more than the mere realisation of a capital asset will not be an enterprise for GST purposes.

Recently the Federal Court addressed the issue of whether a taxpayer who disposes of capital assets can be carrying on an enterprise (FC of T v Swansea Services Pty Ltd [2009] FCA 402).

The taxpayer’s activities in Swansea consisted of investment in artworks and antiques, but the Court addressed the broader issue of “what constitutes the carrying on of an enterprise”.

In Swansea the Court held that activities of a capital nature can amount to an “enterprise” for GST purposes if undertaken in a systematic way, and made the following comments:

  • “Enterprise” is defined widely because GST is intended to have a broad and wide base.
  • Input tax credits are available in relation to the acquisition of capital items (as part of an enterprise) even though capital purchases are not deductible for income tax purposes.
  • Activities can amount to carrying on an enterprise, even if the activities do not amount to the “carrying on of a business” or the “undertaking of a profit making scheme”.

In light of the decision in Swansea, and the possibility of GST liabilities and penalties if GST is not properly accounted for, small land developers should consider:

  • registering and remitting GST (and possibly applying the margin scheme); or
  • applying for a private ruling.


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This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please let us know.