In this alert we reported on a Cooper Grace Ward client who had
received determinations from the ATO that the development of their
residential acreage into 36 allotments:
was the mere realisation of a capital asset (which meant the
profits were exempt from tax); and
did not amount to carrying on an enterprise (which meant they
did not have to pay GST on sales).
In making their decision on the GST issue, the ATO was clearly
influenced by the position they had adopted in Miscellaneous
Taxation Ruling MT 2006/1, that a project that is no more than the
mere realisation of a capital asset will not be an enterprise for
Recently the Federal Court addressed the issue of whether a
taxpayer who disposes of capital assets can be carrying on an
enterprise (FC of T v Swansea Services Pty Ltd  FCA 402).
The taxpayer's activities in Swansea consisted of investment
in artworks and antiques, but the Court addressed the broader issue
of "what constitutes the carrying on of an
In Swansea the Court held that activities of a capital nature
can amount to an "enterprise" for GST purposes if
undertaken in a systematic way, and made the following
"Enterprise" is defined widely because GST is
intended to have a broad and wide base.
Input tax credits are available in relation to the acquisition
of capital items (as part of an enterprise) even though capital
purchases are not deductible for income tax purposes.
Activities can amount to carrying on an enterprise, even if the
activities do not amount to the "carrying on of a
business" or the "undertaking of a profit making
In light of the decision in Swansea, and the possibility of GST
liabilities and penalties if GST is not properly accounted for,
small land developers should consider:
registering and remitting GST (and possibly applying the margin
applying for a private ruling.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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