A recent case presented before the Administrative Appeals Tribunal (AAT) underscores the significance of ensuring that the evidence aligns with the tax position asserted. This specific case revolves around heritage farmland, initially acquired for $1.6 million and later sold for $4.25 million, prompting the Australian Taxation Office (ATO) to pursue a GST debt related to the sale.

In 2013, the taxpayer acquired Sutton Farms in Western Australia, comprising 1.47 hectares with an uninhabitable homestead, a large barn, and quarters. Over seven years, the taxpayer pursued various developments, including rezoning the property, obtaining conditional subdivision approval for four lots (with plans for further subdivision), and conducting sewerage, water, and electrical works. A bank loan of $1 million and an additional $1.5 million from the taxpayer’s brother-in-law supported these endeavours.

Despite the property not being utilised as initially intended, the taxpayer expressed an intention to use it as a family home, gift subdivided lots to children, and dedicate the last lot as a memorial. Ultimately, the property, still undivided, was sold in 2020 for a profit.

Upon an ATO audit and the issuance of a GST assessment on the sale, the taxpayer objected, arguing that Sutton Farms was intended for family use, and the subdivision had no commercial purpose, thus exempt from GST. However, various factors contradicted this stance:

  • Local media articles detailing commercial plans for the property, including leasing it as a restaurant, wine bar, or coffee house.
  • Statements during the ATO objection stage indicating an intention to subdivide for repaying loans.
  • Claimed GST credits on initial development costs, with the taxpayer’s accountant asserting that the subdivision and sale constituted an enterprise.

The challenge for the taxpayer lies in the fact that, despite deviating from the initial development plan and selling the property as a single lot, actions throughout ownership reflected a commercial venture with a stated commercial outcome.

Significance of Objective Evidence

Determining the tax treatment of a property transaction can be complex, necessitating consideration of multiple factors, including the taxpayer’s intention. However, stating intentions alone is insufficient; they must be substantiated by objective evidence. This may involve examining loan terms, correspondence with advisers and real estate agents, expense accounting practices, or documented discussions with relevant parties, such as journalists.

Source: ATO

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