ATO issues Decision Impact Statement on Collins Retirement Fund decision

The ATO has issued a Decision Impact Statement (DIS) to set out its view of the Collins Decision^[1] . In the Collins Decision, the Administrative Appeals Tribunal (Tribunal) confirmed an ATO assessment that imposed GST on the sale of subdivided lots by an SMSF.

In deciding the case in favour of the Commissioner, the Tribunal considered whether the subdivision and sale of lots could be excluded from the GST turnover threshold as a transfer of a capital asset or as a consequence of ceasing to carry on an enterprise.

What was the Collins Decision about?

The Tribunal in the Collins Decision was reviewing the Commissioner’s GST assessment that imposed GST on the subdivision and sale of lots by the taxpayer on the basis the taxpayer was required to register for GST and the sale of lots were taxable supplies made in the course of the taxpayer’s enterprise.

Under section 23-5 of A New Tax System (Goods And Services Tax) Act 1999 (Act), an entity must register for GST if:

• it is carrying on an enterprise; and
• it’s GST turnover meets the registration turnover threshold.

Division 188 of the GST Act provides that a taxpayer meets the GST registration turnover threshold if:

• it has a ‘current GST turnover’ at or above $75,000 in the past 12 months and the Commissioner is not satisfied its projected turnover is below $75,000 for the next 12 months; or
• it has a ‘projected GST turnover’ of at least $75,000 for the next 12 months.

Section 188-25 of the GST Act excludes the following supplies from the concept of ‘projected GST turnover’:

• any supply made, or likely to be made, by you by way of a transfer of ownership of a capital asset of yours; and
• any supply made, or likely to be made, by you solely as a consequence of:

• ceasing to carry on an enterprise; or
• substantially and permanently reducing the size or scale of any enterprise.

The Tribunal found that the supply of the subdivided lots did not fall within any of the exclusions in section 188-25 of the GST Act and therefore counted towards the taxpayer’s ‘projected GST turnover’ meaning it was required to register for GST and remit GST on the sale of lots.

What were the facts of the Collins Decision?

Mr and Mrs Collins acquired two parcels of land in 1986 and 1992. After having run a nursery business on the land for some years, Mr and Mrs Collins sold the business and later transferred the land to a company which acted as a bare trustee (Company) of their self-managed super fund (SMSF). The land was leased to a tenant. The Company was registered for GST and charged GST on the rental receipts from the tenant.

Having acquired the properties, the Company submitted a development application to the local council, seeking approval to subdivide the properties into 11 community title rural residential lots. Approval was granted on 23 February 2016. On 21 March 2016, the Company notified the tenant to vacate. On 1 October 2016, the Company deregistered for GST.

Then on 16 June 2017, the Company registered the plan of subdivision, and sold the resulting lots to third parties during the remaining half of 2017.

The Company took the view that it was not required to register for GST and GST was therefore not payable on the sale of lots on the basis the proceeds from these sales were from the mere realisation of capital assets and therefore excluded from their ‘projected GST turnover’ under section 188-25 of the GST Act. The Commissioner disagreed and imposed GST on the lot sales.

What did the Tribunal determine in the Collins Decision?

The Tribunal held that the Company was required to be registered for GST in relation to sales of the subdivided lots and therefore affirmed the assessment of GST imposed by the Commissioner.

The Tribunal decided that for GST purposes the character of an asset for the purposes of the section 188-25 capital asset exclusion must be determined at the time of the supply is made or likely to be made. This differs from income tax law whereby intention at the time of entering into a scheme/acquisition is an important factor in the context of whether sale proceeds result from the mere realisation of a capital asset.

The Company argued that it had no professional experience in property development, nor did it actually construct dwellings on the land, but the Tribunal found that this was typical of modern subdivision projects and the use of external consultants suggested the lot sales were not sales of capital assets for the purposes of section 188-25.

The Tribunal concluded that given the amount of pro-active planning and improvement that was made to the land and substantial costs and works required to do so, the subdivision and sale of lots was more than a mere realisation of the property in an enterprising way and did not fall within the capital asset transfer exclusion.

Finally, rather than the proceeds being a result of the enterprise ceasing/reducing in size for the purposes of the other exclusion to section 188-25, the Tribunal found that the proceeds were in fact the central objective of the land development enterprise and such enterprise ceased or reduced as a result of sales rather than the sales being made due to the business ceasing or reducing in size.

What is the ATO’s interpretation of the Collins Decision?

In its DIS, the ATO considers the Collins Decision to be consistent with its view published in its GST Ruling GSTR 2001/7, which explains the Commissioner’s view of the meaning of GST turnover and the section 188-25 exclusions.

Furthermore, the ATO highlights that this case confirms an SMSF will always carry on an enterprise by definition (section 9-20(1)(da) of the GST Act provides that an enterprise is an activity done by an SMSF) so the issue for consideration with SMSFs is whether any sales satisfy the $75,000 turnover threshold.

The key take-aways

If a taxpayer is subdividing lots for sale it needs to consider whether it is able to deregister for GST and carefully consider whether GST should be payable on those lot sales in light of the Collins decision, particularly if the taxpayer is an SMSF.

The Collins decision, and ATO DIS, make it clear that the subdivision of land and sale of lots, even on a relatively small scale, could be counted towards the GST turnover and result in GST applying to those lot sales and the capital asset and other exclusions in section 188-25 may not apply to exclude such sales.

More information from Maddocks

For more information, contact Maddocks on (03) 9258 3555 and ask to a member of the Commercial Practice Group.

More Cleardocs information on related topics

You can read earlier ClearLaw articles on a range of topics, such as:

• Superannuation Contributions – A Guide
• Superannuation Contributions and Income Tax – for Self-Managed Superannuation Funds
• Understanding – Contributions, Contributions Caps and Reserves

Order related document packages

• SMSF Minutes and Resolutions Package
• SMSF Pension Commutation
• SMSF Pension Pack
• Superannuation Trust (SMSF)
• Update to SMSF

[1] Ian Mark Collins & Mieneke Mianno Collins ATF The Collins Retirement Fund and Commissioner of Taxation [2022] AATA 628