The case involves heritage farmland originally purchased for $1.6m that sold 7 years later for $4.25m and the GST debt that the ATO is now pursuing on the sale.
In 2013, the taxpayer purchased Sutton Farms in Western Australia – 1.47 hectares consisting of an uninhabitable homestead, large barn and quarters.
Over the course of 7 years, the taxpayer rezoned the property, obtaining conditional subdivision approval to subdivide the property into four lots with plans for a further subdivision into approximately 15 lots, as well as undertaking sewerage, water and electrical works. The work was supported by a $1m loan from a bank and a further $1.5m from his brother-in-law.
While the property was never used for this purpose, the taxpayer’s stated intention was to use the property as their home, gift the subdivided lots to his daughter and son for use as their own respective residences, and use the last subdivided lot as a memorial dedicated to another child who had passed away.
Without being subdivided, the property was eventually sold at a profit as a single lot in 2020 for $4.25m.
When the ATO audited the transaction and issued an assessment notice for GST on the sale transaction, the taxpayer objected. The taxpayer’s argument was that Sutton Farms was intended to be used as a family home and the subdivision application had no commercial purpose. Therefore, GST should not apply as the sale was not made in the course of an enterprise. However, there were a number of factors and inconsistencies working against the taxpayer’s argument:
The importance of objective evidence
Determining the tax treatment of a property transaction can sometimes be a difficult exercise and there are several factors that need to be considered. This will often include the intention or purpose of the taxpayer when acquiring a property. However, merely stating your intention isn’t enough, it needs to be supported by objective evidence. This might include loan terms, correspondence with advisers and real estate agents, the way expenses have been accounted for, or the conversation you have with a journalist.
Link to further detail on the AAT case.
If this raises any questions for you or you just need help on any taxation issues call Joel Thomas on 08 8752 7777. Joel is a Certified Practising Accountant and a Director of Murray Nankivell in our Naracoorte office.
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