The Small Business Claims Tribunal has held that a company (the “taxpayer”) was liable to GST on the sale of 2 lots of vacant land: San Remo Heights Pty Ltd v FCT [2020] AATA 4023 (AAT, Olding SM, 9 October 2020).
Facts
A large parcel of land (the “parent lot”) had been acquired by the taxpayer in 1962. The taxpayer undertook multiple subdivisions of the parent lot, albeit separated by lengthy periods of apparent inactivity (which was not explained). The taxpayer had previously sold 12 of the subdivided lots for a profit.
The taxpayer held various rental properties and operated a sheep grazing business, and was registered for GST. The parent lot was not contiguous with the grazing land nor was it used for grazing or rental purposes. In 2018, the taxpayer sold 2 lots on which the ATO had included GST (ie via amended assessments).
The taxpayer argued that the lots were sold to facilitate the winding up of deceased estates and to simplify its affairs. There was no business plan, no employees at that time and no claims for income tax and input tax credits associated with the land’s ownership had ever been made. It contended that the sales were not made in the course or furtherance of an enterprise that it carried on.
Decision
The SBCT concluded that the taxpayer had not satisfied the burden of proof. While its suggestion of the relatively small scale and long periods between subdivisions was not “without force”, the taxpayer did carry out a series of activities (ie subdivisions and sales) which culminated progressively in the sale of 12 lots. The taxpayer had not discharged the burden of proving those activities were not “an adventure or concern in the nature of trade”.
Thomson Reuters’ comment
The case is another one for the burden of proof file (ie failure to satisfy). That said, it does contain a reminder of how broad the carrying on an enterprise test is in the GST context.
The taxpayer had purchased land over half a century before the relevant plots were sold. It had seemingly done nothing with it, except sell the odd lot approximately every 4 years. The taxpayer was at pains to point out that:
- there was no evidence of a business plan relating to property development or sale;
- there was no evidence of the taxpayer undertaking development and sale in a systematic or businesslike manner;
- there was no registered business name related to property development;
- there were no employees related to property development (indeed, there was no salary and wage expense in 2017 and 2018); there was no evidence of a “controlling mind” when it came to the matter of property development.
However, while the SBCT was indeed satisfied that the sales had no connection with the property rental or grazing enterprises, there was another enterprise (in its view). Or, rather, there was no evidence that there was not another enterprise. In other words, the taxpayer was unable to prove that there was not another enterprise – that of subdivision and sale at a profit. So the SBCT assumed that there was. In its view, it was reasonable to so infer or “at least it cannot be excluded in the absence of contrary evidence, that selling at an opportune time was contemplated when the land was acquired and when the subdivisions were carried out”.
It is almost as if the taxpayer needed to have had a plan to prove that there was no plan (which is a tad Catch-22’ish, it could be suggested, as having a plan saying that there is no plan means in fact that there is a plan).
There is a second useful reminder in the case – that there is little purpose in invoking income tax principles in GST.
The taxpayer referenced income tax cases in which it was held that activities involving the subdivision and sale of property did not constitute “an adventure or concern in the nature of trade, or analogous expressions”. The SBCT stated that the cases concerned a different issue, namely whether the gain on sale was income or constituted the mere realisation of a capital asset.
This is not relevant to GST. GST contemplates that a sale may be a taxable supply, even if the proceeds are of a capital nature for income tax. In GST, an isolated commercial transaction may qualify as an enterprise. As Edmonds J stated in Professional Admin Service Centres Pty Ltd v FCT (2013) 94 ATR 445 at [39], “….s 9-20(1) makes it clear that an ‘enterprise’ can include an isolated commercial venture in the nature of trade, which implies that it can be entered into for a commercial purpose, including the purpose of profit-making….”.
This article was originally published in Thomson Reuters’ Weekly Tax Bulletin.
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