Edited version of private ruling

Authorisation Number: 1011479801832

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Ruling

Subject: GST and sale of property

Question:

Will you be required to be registered for goods and services tax (GST) when you sell your commercial property?

Answer:

No, you will not be required to be registered for GST when you sell your property.

Relevant facts

You own a commercial property (the property).

The property was built several years ago and for the past years, you have leased it to your company.

The company carries on an enterprise and is registered for GST.

You have recently engaged the services of an estate agent to sell the property.

You do not carry on any other enterprise.

You are not registered for GST.

Reasons for decision

Under section 23-5 of the A New tax System (Goods and Services Tax) Act 1999 (GST Act), you are required to be registered for GST if:

· you are carrying on an enterprise; and

· your turnover meets the GST registration threshold.

Section 23-15 of the GST Act provides that the registration turnover threshold is currently $75,000 ($150,000 for non-profit organisations).

Section 9-20 of the GST Act determines what activities constitute the carrying on of an enterprise. More specifically, an enterprise is defined to mean an activity or series of activities, done on a regular or continuous basis, in the form of a lease, license or other grant of an interest in property.

After considering the presented facts, we are of the opinion that the activity being carried on by you is in the form of leasing a commercial property, and accordingly, constitutes an enterprise for GST purposes. We now have to ascertain whether your annual turnover meets the registration turnover threshold of $75,000.

To determine whether you meet the registration turnover threshold of $75,000 when you sell the property, both your current annual turnover and projected annual turnover must be considered.

The ATO's view on the meaning of GST turnover is provided in Goods and Services Tax Ruling GSTR 2001/7.

Subsection 188-10(1) of the GST Act provides that an entity's annual turnover meets a particular turnover threshold if:

· its current annual turnover is at or above the turnover threshold and the Commissioner is not satisfied that its projected annual turnover is below the turnover threshold, or

· its projected annual turnover is at or above the turnover threshold.

An entity's current annual turnover is the value of all the taxable and GST-free supplies that the entity makes or is likely to make, during the current month and the preceding 11 months.

An entity's projected annual turnover, at any particular time, is the value of all taxable and GST-free supplies that the entity has made, or is likely to make, during the current month and the next 11 months. Please note that the annual turnover is calculated for any 12-month period and is not necessarily for a financial year.

You have advised us that the proceeds from the sale of the property will be over $100,000. Therefore, in accordance with subsection 188-15(1) of the GST Act, in the month that you sell the property, your current GST turnover will exceed $75,000.

However, in calculating whether the projected GST turnover meets the amount of $75,000, section 188-25 of the GST Act provides an exclusion rule for that calculation.

The exclusion rule under section 188-25 of the GST Act provides that the following are to be disregarded:

· supplies made, or likely to be made, by way of transfer of ownership of a capital asset, and

· supplies made, or likely to be made, solely as a consequence of ceasing to carry on an enterprise; or substantially and permanently reducing the size and scale of an enterprise.

The term 'capital asset' is not defined in the GST Act. The meaning of that term is contained in Goods and Services Tax Ruling GSTR 2001/7. This ruling is available at the ATO website at www.ato.gov.au

Paragraphs 31 to 33 of GSTR 2001/7 state:

31. The term 'capital assets' refers to those assets that make up the 'profit yielding subject' of an enterprise. They are often referred to as 'structural assets' and may be described as the 'business entity, structure or organisation set up or established for the earnings of profits'.

32. 'Capital assets' can include tangible assets such as your factory, shop or office, your land on which they stand, fixtures and fittings, plan furniture, machinery and motor vehicles that are retained by you to produce income. 'Capital assets' can also include intangible assets such as goodwill.

33. Capital assets are 'radically different from assets which are turned over and bought and sold in the course of trading operations'. An asset which is acquired and used for resale in the course of carrying on an enterprise is not a 'capital asset' for the purposes of paragraph 188-25(a) of the GST Act.

In your case, in working out your projected annual turnover, you would disregard the sale of the property as the sale will be made by way of transfer of the ownership of a capital asset of yours. As the value of the property will not form part of your projected annual turnover, the turnover in the month of sale of the property will be nil.

Your annual turnover when you sell the property will not meet the registration turnover threshold of $75,000 as your projected annual turnover will be below the registration threshold.

You have advised that you do not operate any other enterprise. Hence, neither your current annual turnover nor your projected annual turnover will meet the registration turnover threshold when you sell the property. Therefore, you will not be required to be registered for GST when you sell the property.

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