Determining whether GST is payable on the sale of sub-divided property is difficult where the primary issue is whether the activities amount to a taxable supply ‘made in the course or furtherance of an enterprise’ under section 9-5, A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Each case needs to be considered on the facts and objective evidence available.
In a recent Administrative Appeals Tribunal (AAT) case, Mr Paul Lance (the Taxpayer) contested the ATO’s decision that GST was payable on the sale of his heritage listed property (Sutton Farms), Lance V Commissioner of Taxation [2024] AATA 11 (Lance). The primary issue for the AAT to determine was whether the sale of a heritage listed property was made ‘in the course or furtherance of an enterprise’ carried on by the taxpayer, as all other elements of making a taxable supply were satisfied.
The Taxpayer’s main argument was that Sutton Farms was intended to be used as a family home and the subdivision had no commercial purpose. As a result, the taxpayer sought to argue that the sale of Sutton Farms did not occur in the course of an enterprise and therefore should not be subject to GST. However, the Taxpayer was unsuccessful due to the lack of evidence supporting his contention and the fact that the AAT found inconsistencies with the Taxpayer’s statements. These inconsistencies were in the form of:
- local newspaper articles referencing his plans to commercialise and develop the site to add facilities, (e.g. develop a restaurant or bar, and tourist accommodation);
- statements made by the Taxpayer to the ATO during the objection stage of the dispute indicating that he intended to subdivide the property to sell some of these lots to repay loans owed to the Taxpayer’s brother-in-law; and
- Representations from the Taxpayer’s accountant that GST credits on the original development costs were claimed because the intended subdivision and sale of the several lots within the property amounted to an enterprise.
Consequently, the AAT held that the series of activities conducted by the Taxpayer amounted to an enterprise in the form of a business for GST purposes. This decision was notwithstanding that Sutton Farms had not actually been sub-divided and the fact that it was ultimately sold as a single lot.
Additionally, the AAT held that the property could not qualify as “input taxed residential premises” on the basis that none of the buildings were capable of being occupied (i.e. the buildings were uninhabitable). The AAT also found that regardless of whether or not the Taxpayer was in the business of being a property developer, the series of activities amounted to an enterprise in the form of a business for GST purposes (within section 9-20(1) of the GST Act). Therefore, the sale was a taxable supply and was subject to GST.
This AAT decision is an important reminder that the term “enterprise” is much broader than the income tax concept of “carrying on a business”. The Lance case is also a timely reminder that a taxpayer’s activities prior to the sale of land and any objective evidence will be scrutinised when considering whether or not the taxpayer is carrying on an enterprise.
Furthermore, this decision has potential flow-on implications for income tax purposes especially for those looking to argue that the sale of a property should be taxed on capital account. Careful consideration of the facts and evidence needs to be made before determining whether a property owner is conducting an enterprise and has made a taxable supply on which GST is payable when they sell their sub-divided property.
If you would like to discuss this matter further, please contact Mimi Ngo.