The GST implications associated with property development can be difficult to navigate, especially whether your activities amount to an 'enterprise’ of property development, or whether you have just taken steps to maximise the value of your property to sell it in a profitable way.
Where that line is drawn can be very difficult to discern, but the onus is on you draw it and pay GST (or not) – the ATO will usually determine this on a case-by-case basis and the tipping point will depend on your specific circumstances. As with many tax matters, the facts and your ability to evidence them will be crucial.
A recent example of this is in Lance and Commissioner of Taxation (Taxation) [2024] AATA 11, which concerned development activities (including rezoning and obtaining subdivision approval) undertaken on a property in Western Australia consisting of several structures of cultural historical significance.
Following several setbacks and delays with the development, largely due to Council requirements given the heritage site status of the property, the property was sold as a single parcel of land un-subdivided, and the taxpayer did not remit GST on the sale. In his submissions, the taxpayer maintained that the sale was not made in the course or furtherance of an enterprise he carried on and claimed that he only undertook subdivision of the property for the purposes of living on it together with his family rather than for commercial reasons. He further contended that the sale was the mere realisation of property.
However, there was a lack of independent evidence corroborating the taxpayer’s contentions. Indeed, there was some unhelpful evidence to the contrary – for example, several local newspaper articles published at the time of the taxpayer’s initial purchase referenced plans to commercialise the property and develop the site to add facilities such as a restaurant or small bar and residential tourist development. While accepting that the taxpayer intended to live in the heritage homestead located on the property, the AAT found that the taxpayer also intended to subdivide the property and sell the subdivided lots for a profit for the purposes of financing the development and renovation of the heritage homestead and paying off his loans.
The AAT further found that the series of activities conducted by the taxpayer amounted to an enterprise in the form of a business for GST purposes – regardless of whether or not the taxpayer was in the business of being a property developer – and the sale was therefore a taxable supply. The AAT had regard to the following factors which pointed to an enterprise being carried on by the taxpayer:
- The scale of the operations, including the rezoning and proposed subdivision of the property, which comprised 1.47 hectares, into a total of approximately 19 lots.
- The amount of capital investment in the purchase of the property and development activities including various infrastructure works.
- All of the activities were undertaken over a period of several years and significantly increased the value of the property.
Given all of this, taxpayers should be very careful when taking the position that any subsequent sales are a mere realisation of property, especially where there is a profit making intention (to be determined objectively from the surrounding evidence). The ATO has ramped up its review activity and will be looking at issues such as this with increased focus.
The application of GST to property maters is one of the most difficult areas of GST in practice. We deal with these issues on a daily basis and can help you navigate these and other difficult GST matters such as the margin scheme, going concern and capital structures with tailored, robust and commercially sensible advice.
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