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Edited version of private ruling

Authorisation Number: 1011580992400

Ruling

Subject: Goods and services tax(GST): required to be registered

Question 1

Are you required to be registered under section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)?

Advice/Answers

No, you are not required to be registered under section 23-5 of the GST Act.

Relevant facts

You are not registered for GST.

In a specified year, you purchased a property to build your family home.

You subsequently realised it was too isolated for your home and now want to sell it for $XX

You bought the land in your name only. It is not a partnership asset.

The land is a specified number of acres, of which a small portion is leased to B. The yearly rental is $YY.

There is a fallen down shed (3m x 2m) on the land. Otherwise it is vacant land.

You jointly own a house in a specified place, where you previously resided with your husband, from whom you are now separated.

Apart from a country property that you and your husband owned in the 1990s, you have not been involved in any other real estate transactions.

You are a partner in a partnership with your husband.

You hold shares on a long term basis as an investment, but do not trade in them.

You do not carry on any other enterprise.

Reasons for decision

Section 23-5 of the GST Act provides that you are required to be registered for GST if:

 

§ you are carrying on an enterprise, and

§ your GST turnover meets the registration turnover threshold, which is currently $75,000 for entities other than non-profit entities.

 

An activity done on a regular or continuous basis, in the form of a lease or licence of an interest in property is an enterprise. You are carrying on a leasing enterprise based on the information provided above. Therefore, it remains to be determined whether your GST turnover meets the registration turnover threshold.

Subsection 188-10(1) of the GST Act provides that you have a GST turnover that meets the registration turnover threshold if:

§ your current GST turnover is at or above the registration turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the registration turnover threshold, or

§ your projected GST turnover is at or above the registration turnover threshold.

Subsection 188-15(1) of the GST Act provides that your current GST turnover is the sum of the values of all the supplies in a particular month plus the previous 11 months. Subsection 188-20(1) of the GST Act provides that your projected GST turnover is the sum of the values of all supplies made in a particular month plus the next 11 months.

 

Section 188-25 of the GST Act provides that when calculating your projected GST turnover, you do not include any supplies made, or likely to be made by you:

§ by way of transfer of ownership of a capital asset, or

§ solely as a consequence of ceasing an enterprise or substantially and permanently reducing the size or scale of your enterprise.

The GST Act does not define the term capital assets. However, the meaning of 'capital asset' is discussed in Goods and Services Tax Ruling GSTR 2001/7 Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover (GSTR 2001/7). Paragraphs 31 to 36 of GSTR 2001/7 explain that generally, 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. They may be described as the business entity, structure or organisation set up or established for the earning of profits.

 

Capital assets are to be distinguished from revenue assets. A revenue asset is an asset whose realisation is inherent in, or incidental to, the carrying on of a business. If the means by which you derive income is through the disposal of an asset, the asset will be of a revenue nature rather than a capital asset even if such a disposal is an occasional or one-off transaction. Therefore, the character of an asset must be determined at the time of expected supply.

 

In this case, you originally intended to build your home on that piece of land. However, you subsequently realised it was too isolated for your home. You generated revenue from the leasing of the asset, not the disposal of the asset. Therefore, we consider the land to be your capital asset.

 

Therefore, the proceeds from the sale of the land will be excluded when calculating your projected GST turnover.

 

Accordingly, your GST turnover does not meet the registration turnover threshold and you are not required to be registered under section 23-5 of the GST Act. 

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