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Edited version of private ruling
Authorisation Number: 1011813600751
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Ruling
Subject: GST and sale of commercial property
Question
Are you required to include in your GST annual turnover the amount you are to receive from the supply by way of sale of the commercial properties (Prpoerties)?
Answer: No.
Relevant facts and circumstances
You registered for GST.
You advise that you registered for GST on the basis that you may have to remit GST on the supply, by way of an impending sale of a number of commercial properties.
You lease the Properties for an annual payment well below the GST turnover threshold.
The properties are to be sold in the near future, along with the existing leases.
You do not have any other income for the purposes of determining your GST turnover both current and projected.
You have not made any taxable supplies since GST registration and nor have or are you to claim any GST credits.
Reasons for decision
Summary
The amounts received by way of sale of the Properties should be disregarded for the purposes of calculating your projected GST turnover as the Properties are capital assets.
Detailed reasoning
Your current GST turnover is at or below the registration turnover threshold of $75,000.
Current GST turnover per section 188-15 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) during a particular month is the sum of the GST exclusive supplies that you have made or are likely to make during the twelve months ending at the end of that month.
On the basis of your current GST turnover you are not required to be registered for GST.
However, we do need to consider whether your projected GST turnover will be at or above the registration turnover threshold and in particular whether the amounts received from the sale of the Properties would be included.
Projected GST turnover and section 188-25 of the GST Act
Projected GST turnover at a time during a particular month is the sum of the GST exclusive supplies that you have made or are likely to make during that month and the next eleven months.
Paragraph 188-25(a) of the GST Act provides that in calculating an entity's projected GST turnover the sale capital assets is disregarded.
Goods and Services Tax Ruling GSTR 2001/7 explains the Australian Taxation Office's view on the meaning of GST turnover including the effect of section 188-25 of the GST Act on projected annual turnover.
Paragraphs 31 to 36 of GSTR 2001/7 explain ATO's view on the meaning of capital assets.
Paragraph 31 of GSTR 2001/7 explains that the GST Act does not define the term but provides that the term refers to those assets that make up the 'profit yielding subject' of an enterprise.
Paragraph 33 of GSTR 2001/7 explains that capital assets are different from assets which are 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 section 188-25 of the GST Act.
Paragraph 34 of GSTR 2001/7 further provides that capital assets should be distinguished from revenue assets.
Where an entity derives income from the disposal of an asset the asset will be of a revenue nature rather than a capital asset.
Paragraph 36 provides that over the timeframe that an asset is held by an entity its character may change from capital to revenue or vice versa.
Application to your circumstances
In your case you have derived income from the Properties by way of leasing.
You intend to sell the Properties.
We consider that the Properties form part of the profit yielding subject of your leasing enterprise and as such are capital assets for the purposes of section 188-25 of the GST Act.
We are also of the view that whilst held by you the character of the Properties has not changed from capital to revenue.
Consequently, in working out your projected GST turnover, the amounts received are disregarded.
Therefore, your projected GST turnover will be below the registration turnover threshold and you would no be required to be registered for GST.
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