Edited version of private ruling

Authorisation Number: 1011603909809

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Ruling

Subject: GST and sale of property

Question

Will the sale of the property be a taxable supply?

Answer

No, the sale of the property will not be a taxable supply.

Relevant facts and circumstances

Your ruling is based on the following facts.

· You are carrying on an enterprise.

· You are not registered for goods and services tax (GST).

· Your GST turnover is less than $75,000.

· You purchased the property prior to 1 July 2000.

· The land is zoned commercial.

· You built a workshop and a showroom on the property.

· No part of the property is used for private purposes.

· You lease the property to another entity (the lessee) who conducts an enterprise from the property.

· You entered into a contract with the lessee to sell the property for a specified amount.

· The contract provides that you and the purchaser agreed that the sale of the property is a supply of a going concern.

· The settlement will take place shortly.

· You will cease carrying on an enterprise once the property is sold.

· The purchaser is registered for GST.

Reasons for decision

Detailed reasoning

Subsection 7-1(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that GST is payable on taxable supplies and taxable importations.

Section 9-5 of the GST Act states:

You make a taxable supply if:

(a)     you make the supply for *consideration; and

(b)     the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c)     the supply is *connected with Australia; and

(d)     you are *registered, or *required to be registered.

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

(* denotes a term defined in section 195-1 of the GST Act)

Therefore, for the sale of your property to be a taxable supply, all of the requirements listed in section 9-5 of the GST Act must be satisfied.

In your case, you are selling the property for consideration and in the course of carrying on your enterprise. The sale is connected with Australia because the property is located in Australia. Therefore, the sale of your property meets the requirements in paragraphs 9-5(a), 9-5(b) and 9-5(c) of the GST Act.

You are not registered for GST; therefore, what remains to be considered is whether you are required to be registered for GST.

Whether you are required to be registered for GST

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

(a)   you are carrying on an enterprise, and

(b)   your GST turnover meets the registration turnover threshold.

As stated earlier, you are carrying on an enterprise of leasing. Therefore, you meet the requirement in paragraph 23-5(a) of the GST Act.

We need to determine whether you GST turnover meet the registration turnover threshold. The registration turnover threshold for an entity (other than a non-profit entity) is $75,000.

Subsection 188-10(1) of the GST Act provides that your GST turnover will meet a particular turnover threshold if:

(a)  your current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the turnover threshold; or

(b)  your projected GST turnover is at or above the turnover threshold.

Your current GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during the 12 months ending at the end of that month.

Your projected GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during that month and the next 11 months.

When calculating your current and projected GST turnover, some supplies, including supplies that are input taxed are disregarded. However, turnover from leasing commercial properties is not excluded when calculating the current and projected GST turnovers.

You advised that your GST turnover from leasing the property is less than $75,000 and that you do not have any other enterprise. As such, your current GST turnover is below the registration turnover threshold. Therefore, we need to determine whether your projected GST turnover will be at or above the registration turnover threshold,

You advised that you will cease the leasing enterprise once the property is sold. As such, your projected GST turnover from leasing the property alone will also be below the registration turnover threshold. However, we need to determine whether the proceeds from the sale of the property will be included in working out your projected GST turnover.

Section 188-25 of the GST Act provides that in working out your projected GST turnover you should disregard:

(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. Goods and Services Tax Ruling GSTR 2001/7 considers the meaning of 'capital asset' for the purposes of section 188-25 of the GST Act.

Paragraphs 31 to 33 of GSTR 2001/7 state:

31. The GST Act does not define the term 'capital assets'. Generally, the term 'capital assets' refer 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 earning 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, plant, furniture, machinery and motor vehicles that are retained by you to produce income. Capital assets can also include intangible assets, such as your 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 (for example, trading stock) is not a 'capital asset' for the purposes of paragraph 188-25(a).

Paragraph 36 of GSTR 2001/7 further provides that over the period that an asset is held by an entity, its character may change from capital to revenue or from revenue to capital. For the purposes of section 188-25 of the GST Act the character of an asset must be determined at the time of expected supply.

In your case, you purchased the property and built a workshop and a showroom on it. The property is zoned commercial. No part of the property is used for private purposes or accommodation. You lease the property from which the lessee conducts its enterprise. You use the property to derive rental income. As such, the property is a capital asset.

Therefore, the sale of the property will be regarded as the transfer of a capital asset under paragraph 188-25(a) of the GST Act. Accordingly, the proceeds from the sale of your property will not be included in the calculation of your projected GST turnover.

As your GST turnover will not meet the registration turnover threshold, the requirement in paragraph 23-5(b) of the GST Act will not be satisfied. Therefore, you will not be required to be registered for GST and as such, you will not meet the requirement in paragraph 9-5(d) of the GST Act.

The sale of your property will not meet all of the requirements in section 9-5 of the GST Act. Accordingly, the sale of your property will not be a taxable supply and the sale will not be subject to GST.

As the sale of property will not be a taxable supply, it is no longer necessary to determine whether the sale will be a GST-free supply of a going concern.

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