Edited version of private ruling

Authorisation Number: 1011478250100

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Ruling

Subject: GST and sale of display home

Question:

Are you carrying on an enterprise?

Are you required to be registered for GST?

Are there any GST implications for you when you sell the property?

Advice/Answers:

Yes, you are you carrying on an enterprise.

No, you are not required to be registered for GST.

As you are not registered or required to be registered for GST, there is no GST implications for you on the sale of the property.

Relevant facts:

You bought a block of land (the property) post July 2000.

Your intention was to retain the capital asset for the purpose of earning revenue and not intended for sale in the ordinary course of business.

You are not registered for GST.

The builder built the house on the vacant land and rented it from you to be used as a display home.

The builder paid rent to you.

You did not claim any GST for the construction costs or any expenses associated with renting out the property.

After a couple of years, circumstances changed and you are now in the position where you need to sell the property.

You do not carry on any other enterprise.

Reasons for decision

GST is payable on taxable supplies. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that you make a taxable supply if:

§ you make the supply for consideration;

§ the supply is made in the course or furtherance of an enterprise that you carry on;

§ the supply is connected to Australia; and

§ you are registered, or required to be registered for GST.

However, to the extent that the supply is GST-free or input taxed, it is not a taxable supply.

A supply is a taxable supply, if among other things the supply is made in the course or furtherance of an enterprise that you carry on. A transaction is a supply in the course or furtherance of an enterprise that is carried on, where the supplies can be considered to be connected to your enterprise. The term in the course or furtherance is not defined in the GST Act, but the term is wide enough to cover any supply made in connection with an enterprise and to cover natural incidents and things incidental to the core enterprise activities. Additionally, an act done for the purpose or object of furthering an enterprise, or achieving its goals, is in the furtherance of an enterprise although it may not always be in the course of that enterprise.

Are you carrying on an enterprise?

Section 9-20 of the GST Act provides the definition of enterprise for GST purposes. This definition includes an activity or series of activities done in the form of a business; or in the form of an adventure or concern in the nature of trade; or on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in the property.

In your case, you have leased the property to the builder to be used as a display home; hence you are carrying on a leasing enterprise. For the supply of a thing to be made in the course or furtherance of your enterprise, the sale of the thing must have a connection with your enterprise. Whether a connection between the sale of the thing and your enterprise exists will depend on the facts and circumstance.

Goods and Services Tax Ruling GSTR 2004/8 contains the Australian Taxation Office (ATO) view on decreasing adjustments on supplies. It also considers the meaning of in the course or furtherance in relation to an enterprise. Paragraph 29 of GSTR 2004/8 states:

Given the broad meaning of in the course or furtherance, a sale of a thing is capable of being made in the course or furtherance of an enterprise regardless of the extent to which it has a connection with the enterprise, so long as it has some connection. The GST Act does not require that the thing must be applied primarily or principally in carrying on the enterprise for the supply of the thing to be in the course or furtherance of an enterprise. Accordingly, a connection between the sale of the thing and your enterprise exists even if, at the time of its sale, the thing is applied in carrying on the enterprise to a minor or secondary extent.

As you have used the property to carry on a leasing enterprise, the disposal of the property has a connection with your enterprise. Accordingly, the supply of property will be considered to have been made in the course or furtherance of the leasing enterprise that you carry on. As such, the supply of the property will satisfy the second dot point requirement of a taxable supply as listed above (paragraph 9-5(b) of the GST Act).

Are you required to be registered?

You are not currently registered or required to be registered for GST. Under section 23-5 of the GST Act, you are required to be registered if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold.

The applicable GST registration turnover threshold is $75,000. You have a GST turnover that meets the registration turnover threshold if your current GST turnover is at or above $75,000 and your projected GST turnover is not below $75,000.

In calculating your GST turnover under Division 188 of the GST Act certain supplies are excluded.

Goods and Services Tax Ruling GSTR 2001/7 considers the ATO view on the meaning of GST turnover and other related issues.

Paragraph 14 of GSTR 2001/7 summarises the types of supplies that are excluded from the calculation of current and project GST turnover:

§ supplies that are input taxed;

§ supplies that are not for consideration (and not taxable supplies under section 72-5);

§ supplies not made in connection with an enterprise that you carry on;

§ supplies that are not connected with Australia; and

§ supplies made from one member of a GST group to another member of that GST group.

Further, section 188-25 excludes certain supplies made when working out your projected annual turnover. Paragraph 29 of GSTR 2001/7 states:

Section188-25 requires you to disregard the following when calculating your projected annual turnover.

(a) any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours; and

(b) any supply made, or likely to be made, by you solely as a consequence of:

(i) ceasing to carry on an enterprise; or

(ii) substantially and permanently reducing the size or scale of an enterprise.

The meaning of capital assets is not defined in the GST Act. Capital assets are often referred to as structure assets and may be described as the business entity, structure or organisation set up or established for the earning of profits. It can include tangible assets such as your factory, shop or office, your land on which they stand.

It is to be distinguished from revenue assets which are assets whose realisations are inherent in or incidental to, the carrying on of a business.

The sale of the property which you have used to carry on your leasing enterprise is a transfer of ownership of a capital asset by you.

Therefore, the supply of the property satisfies section 188-25 of the GST Act and as such, the value of the subdivided lots will not form part of the sum of your projected GST turnover.

In your case, you only make input taxed supplies for consideration of rental income. This amount will be excluded from the current and projected GST turnover. The sale of the property will be excluded from the calculation of the projected GST turnover.

Accordingly, your GST turnover does not meet the registration turnover threshold and hence you are not required to be registered for GST.

Will the sale of the display home be a taxable supply under section 9-5 of the GST Act?

As you are not registered or required to be registered for GST and there will be no increase in your GST turnover as a result of the supply of the property, paragraph 9-5(d) of the GST Act will not be satisfied.

In conclusion, as you are not registered or required to be registered for GST, all the conditions of a taxable supply are not satisfied and you will not be making a taxable supply of the property under section 9-5 of the GST Act. This is regardless of whether or not the display home meets the requirements of new residential premises and whether or not the sale is input taxed.

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