IRD has recently published Questions We’ve Been Asked (QB 24/04) restating their position on when a subdivision project might be a taxable activity and subject to GST.
It is important to identify whether a subdivision project is a taxable activity as it could impact final sale price as well as cashflow during the project. Whether a subdivision project is a taxable activity will depend on the facts of each case.
A subdivision project is a taxable activity when it is carried on continuously or regularly and for consideration. The factors considered in determining whether a subdivision project is continuous or regular are the:
- number of lots created
- level of activity involved in the project
Number of lots
Generally, a single supply made from a one-off subdivision will not be considered continuous or regular activity. In contrast, a subdivision and sale of multiple sections to the market over several years is more likely to be continuous and regular.
While there is no specific number that will determine whether a taxable activity exists, IRD considers generally that a subdivision involving the creation and sale of four or more lots will be a taxable activity, unless the level of work involved is very low. It should be noted however that even if the number of lots created is less than four, the level of activity may still result in a taxable activity, depending on the facts.
Level of activity
Factors that the IRD considers may be relevant in determining the level of taxable activity include the:
- scale of the subdivision;
- level of development work;
- time and effort involved;
- level of financial investment; and
- level of repetition
This publication provides a useful starting point however the outcome in each case will depend on the facts. If you have questions regarding your particular circumstances, please get in touch with one of the team.