Below are frequently asked GST questions in regards to vacant land issues. Click on the question below to view answer.
If the land was not acquired for the purpose of resale (e.g. to subdivide, build units on and sell) or for use in connection with the business (e.g. for expansion of the car wash) but was only ever intended to be used for private or domestic use (e.g. the land was bought with the intention of building a home on it but for various reasons the owners changed their minds and decided to sell it) that would not be in the course or furtherance of an enterprise.
When considering whether a supply is in the course or furtherance of an enterprise, it is important not to assume that, if a person has a car wash business (as an example), only supplies related to that business will be considered to be in the course or furtherance of the person’s enterprise. An entity can only have one enterprise and only one GST registration (if you exclude trustee activities) and all business activities will be considered to be connected to that enterprise and activities could include dealings with land and any other business activities that are not input taxed (such as financial supplies or residential lettings).
An entity is required to be registered if its GST turnover is at or above the GST registration threshold ($75,000 p.a.). GST turnover consists of current GST turnover and projected GST turnover and includes turnover from all sources other than salaries and input taxed turnover. Practitioners often incorrectly look at this issue on a property-by-property basis as if there could only be a requirement to be registered if the turnover generated by the subject property were at or above the registration turnover threshold.
A lot depends on the purpose of the clients in acquiring the land. If their intention was to acquire it for later resale, then it is trading stock. Its value when marked for sale would form part of projected GST turnover and, presumably, take the client’s turnover over the registration threshold. If their operations have involved dealings with land, then it would be wrong for them to cancel their registration and then sell.
No. Vacant land is not considered to possess the characteristics essential to residential premises.
Yes. Where land is sold to a builder who intends to resell to private individuals for residential purposes, the builder will need to buy on the margin scheme if intending to sell on the margin scheme. The ultimate purchaser will then only pay GST on the excess of the total sale consideration over the cost of land to the builder.
Whether the sale of vacant land is subject to GST depends entirely on whether the supply satisfies the conditions set out in section 9-5 of the GST Act as the essential elements of a taxable supply.
Section 9-5 provides that a taxable supply is a supply:
- made for consideration
- made in the course of an enterprise that the supplier carries on
- connected with Australia and
- made by a supplier who is registered, or required to be registered, for GST purposes
Note that vacant residential land can never be regarded as being “residential premises” and, accordingly, input taxed treatment under s.40-65 is not available.