In the form of a business
Guidance on the main indicators of carrying
on a business can be found in TR 97/11. The
holding and sale of a single block of land
would not ordinarily tantamount to carrying on
Adventure or concern in the nature of trade
This category intends to capture within the definition of the term enterprise a commercial activity that does not amount to a business. For example, the ATO in GSTR 2001/7 has observed that acquiring and refurbishing a suburban shop for resale at a profit could amount to an enterprise.
Hence, where a taxpayer is not engaged in
the business of selling property, it is necessary
to ascertain whether sale of a vacant block of
land would constitute “an adventure or concern
in the nature of trade” and satisfy the second
limb of the term enterprise.
The ATO in MT 2006/1 discusses when
an isolated property transaction would
result in an entity carrying on an enterprise.
The Commissioner considers that isolated
transactions entailing sale of land which was
purchased with the intention of resale at a profit
would constitute an enterprise. This would be so
whether the land was sold as it was when it was
purchased or whether it was subdivided before
sale (paragraph 270, MT 2006/1).
The ATO in the above ruling has identified
a number of factors related to isolated
transactions and sales of real property. The
ATO suggests that the presence of several
of these factors in a particular situation may
indicate that a business or an adventure or
concern in the nature of trade is being carried
on. These factors are as follow:
- there is a change of purpose for which the
land is held
- additional land is acquired to be added to
the original parcel of land
- the parcel of land is brought into account
as a business asset
- there is a coherent plan for the subdivision
of the land
- there is a business organisation – for
example a manager, office and letterhead
- borrowed funds financed the acquisition or
- interest on money borrowed to defray
subdivision costs was claimed as a business
- there is a level of development on the land
beyond that necessary to secure council
approval for the subdivision, and
- buildings have been erected on the land.
The Commissioner in the ruling observes that
an enterprise would not be formed if after
considering the aforementioned factors it could
be concluded that sale of land constitutes mere
realisation of a capital asset or a private asset.
Similarly, no enterprise is formed where it can
be established that the individual taxpayer had
no expectation of profit from the activity.
Hence, whether sale of a block of land by
an entity would constitute the carrying on of
an enterprise would depend on the facts and
circumstances of a particular case and the
evidence a taxpayer is able to come up with to
support his/her assertions.
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