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I have owned a farming property since 2002 in a company.
The intention when purchasing was to build a new residence and use it as farming land.
During the past 6.5 years the property has been used as farming land (cattle agistment).
A decision was also taken after 1.5 years to subdivide and sell the land as we had purchased another property in the area.
The subdivision was done slowly over a 4 year period – all the while using the land for cattle.
Is the sale of the subdivided blocks subject to GST? (I have claimed back the GST on the subdivision costs over the past 4 years)
Thank you for your input
Answer
I am wondering why you are registered for GST? I can’t see why you would if you were simply agisting cattle as I imagine the income would not push you over the limit to have to register and that there would not be much that you could claim input credits on. What did you say your business was when you registered? I trust it wasn’t land developer.
The sale of the blocks will be subject to GST if they are sold in the furtherance of an enterprise that is registered for GST. This would be the case even though that enterprise may not be the business of developing land. If it has been used in a business that is registered for GST then it is subject to GST on sale.
Now to the question of whether you need to be registered. If your turnover that is subject to GST exceeds $75,000 then you must register and charge GST. If you did not buy the land with the intention of making a profit on its sale ie your primary purpose was farming then the value of the future sale of this land is not included in the $75,000 test. So if your agistment fees are under $75,000 you do not need to be registered. The only trap is if the ATO consider you to have later decided to go into the business of land development then it does count towards the $75,000 threshold. You argument against this is that you are only subdividing the blocks because it is the most effective way of selling the asset. You will need to have a good read of our How Not To Be A Developer booklet to get a good understanding of this line of argument. It is under the free publications section of the web site.
If you think you have an argument that the land is not part of the business’ normal turnover then you can deregister for GST though you will have to pay back the GST you received from any development costs exceeding $1,000.
As an entity not registered for GST selling the blocks not as part of a business enterprise but simply to realise an asset, you would not have to charge GST on the blocks
