For a supply to trigger a GST liability, it needs (amongst other things) to be made in the course of furtherance of an enterprise. A common GST question is whether the sales of vacant lots of land amount to carrying on an ‘enterprise’ and are subject to GST.
In San Remo Heights Pty Ltd and Commissioner of Taxation [2020] AATA 4023, the taxpayer was a company carrying on sheep grazing activities and rental activities (the Company). The Company bought a parcel of land (“the parent lot”) in 1962. Over the years, the Company undertook various subdivisions of the parent lot.
The Company argued that no GST should apply since these lots of land had not been directly used in connection with the sheep grazing activities or the rental activities. The ATO disagreed and contended that even though the Company did not use the subdivided blocks of land in rental activities or grazing activities, they were still used in connection with an enterprise.
The Company submitted that the sole objective of disposing of the lots was to facilitate the closure of the estates of deceased shareholders’ in the Company and simplify the ongoing affairs of the Company. There was also no evidence of any business plan relating to property development or sale, no evidence of the Company undertaking land development and sale in a systematic, organized, or businesslike manner.
The AAT accepted that the motivation for the sales of the vacant lots was a desire to finalise the estates. However, such motivation was not inconsistent with the land being acquired for the commercial purpose of generating a financial gain. In addition, there was no evidence of the purpose of the controlling minds of the Company in subdividing and selling blocks of land over the period (no minutes, written records, etc).
There was insufficient evidence for the Company to discharge the burden of proving those activities were not an adventure or concern in the nature of trade. The Tribunal affirmed the Commissioner’s view and held that the Company’s enterprise encompassed the acquisition, subdivision and sale of the subdivided lots.
This case highlights the following matters:
It is more difficult for a company to prove that it is not carrying on an enterprise (more evidence required), as opposed to an individual in the same circumstances.
Even if a company is registered for GST on the basis that it carries on an enterprise, not every supply made by the company will necessarily be taxable as a supply made in the course or furtherance of an enterprise. Each case involves a question of fact (provable with evidence).
For more information please contact:
Lucy Liang
Graduate Lawyer
E lliang@sladen.com.au
Neil Brydges
Principal Lawyer | Accredited Specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
E nbrydges@sladen.com.au
