Edited version of private ruling

Authorisation Number: 1011902138904

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Ruling

Subject: GST registration and sale of property

Question 1

Will the sale of the commercial property by the unregistered joint owners be a taxable supply?

Answer

No, the sale of the commercial property by the unregistered owners will not be a taxable supply.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

Our decision is based on the following facts.

· The commercial property is owned by joint owners, (you)

· You are not registered for GST.

· Your annual income is below the turnover threshold required for GST registration purposes.

· You informed that you leased the property to a related entity.

· The related entity is registered for GST.

· The related entity is carrying on an enterprise..

· The related entity never paid lease income to you in excess of $50,000 per annum.

· You are in the process of terminating your enterprise and negotiating the sale of this property to an unrelated entity (purchaser)

· The purchaser is intending to continue to operate the business.

· As the property is badly run down and has a poor financial history the value of the business is not being factored in to the negotiated selling price of the property. It is strictly a land value sale that the owners are seeking.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5,
A New Tax System (Goods and Services Tax) Act 1999 Section 9-10,
A New Tax System (Goods and Services Tax) Act 1999 Section23-5,
A New Tax System (Goods and Services Tax) Act 1999 Section 188-10,
A New Tax System (Goods and Services Tax) Act 1999 Subsection 188-10(1),
A New Tax System (Goods and Services Tax) Act 1999 Subsection 188-15(1),
A New Tax System (Goods and Services Tax) Act 1999 Subsection 188-20(1) and
A New Tax System (Goods and Services Tax) Act 1999 Subsection 188-25.

Reasons for decision

Summary

The sale of the commercial property by the unregistered owners will not be a taxable supply.

Detailed reasoning

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that GST Act provides that you make a taxable supply if you make the supply for consideration; in the course or furtherance of an enterprise that you carry on; the supply is connected with Australia; and 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.

Section 9-10 of the GST Act mentions that a supply is any form of supply whatsoever and includes a grant, assignment or surrender of real property;

According to the information provided the property is located in Australia, will be sold for monetary consideration, in the course or furtherance of a commercial property leasing enterprise that you carry on. If you are registered or required to be registered for GST your supply will be taxable.

You have advised that you are not registered for GST. Therefore, it is necessary to consider whether you are required to be registered for GST.

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.

Currently the registration turnover threshold (unless you are a non-profit body) is $75,000.

Therefore, if your annual turnover meets the relevant turnover threshold, you are required to register for GST.

Division 188 of the GST Act deals with the meaning of GST turnover and whether it meets a particular turnover threshold.

Under subsection 188-10(1) of the GST Act you have an annual turnover that meets a particular turnover threshold if:

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

· your projected annual turnover is at or above that turnover threshold.

Under subsection 188-15(1) of the GST Act your current annual 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, other than:

· supplies that are input taxed; or

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

· supplies that are not made in connection with an enterprise that you carry on.

In the month that you sell the property your current annual turnover will exceed $75, 000. It is therefore necessary to consider your projected annual turnover.

Under subsection 188-20(1) of the GST Act your projected annual 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, other than:

· supplies that are input taxed; or

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

· supplies that are not made in connection with an enterprise that you carry on.

Furthermore, section 188-25 of the GST Act provides that in working out your projected annual turnover, disregard: 

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

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

o ceasing to carry on an enterprise; or

o substantially and permanently reducing the size or scale of an enterprise.

Goods and Services Tax Ruling GSTR 2001/7 provides the Australian Taxation Office view in relation to the meaning of GST turnover, including the effect of section 188-25 on projected annual turnover.

Paragraphs 29 and 30 of GSTR 2001/7 state: 

'29. Section 188-25 modifies the effect of section 188-20 by excluding certain supplies made when working out your projected annual turnover. Section 188-25 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.

 30. Your projected annual turnover does not include supplies that fall within the description in either paragraph 188-25(a) or paragraph 188-25(b) listed above. Your supply does not have to satisfy the descriptions in both paragraph (a) and paragraph (b). When you make a supply that is capable of satisfying the description in both paragraphs, the supply is excluded only once. (See example 3 at paragraph 53.)'

Example 3 of GSTR 2001/7 states: 

'Example 3: Sample calculation of current annual turnover and projected annual turnover

53. Alan, a retiree, owns all three shops located next to a suburban railway station. Each of the shops is rented to tenants whose weekly tenancies are to terminate on 14 December 2001. The rent payable for each of the three shops is $200 per week. The railway department is planning an expansion of the station. Alan sells the shops with vacant possession to the railway department for $200,000. Alan's only enterprise is renting the shops. He is not registered for GST. He is not intending to carry on any other enterprise in the next 12 months. Settlement is to take place on 20 December 2001.

54. Alan's current annual turnover as calculated in December 2001 is the sum of the values of all the supplies that he has made or is likely to make during the 12 months ending on 31 December 2001. Alan has no supplies that are excluded under sections 188-15 or 188-20 (such as input taxed supplies).

55. Alan's current annual turnover is 50 weeks rent of $600 per week (up to 14 December 2001) plus the $200,000 from the sale of the shops. That is, a total of $230,000. Alan's current annual turnover is above the registration turnover threshold.

56. Alan's projected annual turnover is the sum of the values of all the supplies that Alan has made or is likely to make in December 2001 and up to 30 November 2002. Alan has made or will make supplies of 2 weeks rent of $600 per week (up to 14 December 2001) plus the $200,000 from the sale of the shops. His projected annual turnover calculated under section 188-20 is $201,200.

57. In selling the shops, Alan will dispose of a capital asset in addition to ceasing to carry on his enterprise. Although the supply satisfies the conditions under both paragraph 188-25(a) and 188-25(b), those proceeds are excluded only once when calculating projected annual turnover. (Refer to paragraph 30.) Alan can disregard the $200,000 from the sale of the shops. Alan calculates his projected annual turnover as $1200. As Alan has calculated his projected annual turnover on a reasonable basis to be below the registration turnover threshold, his annual turnover does not meet that particular turnover threshold. He is not required to register for GST.' 

Therefore, in this instance we consider that the proceeds of the sale of the property are excluded from calculating your projected annual turnover. As your projected GST turnover will be below the turnover threshold you will not be required to be registered.

Therefore, as you are neither registered or required to be registered not all the requirements of section 9-5 of the GST Act will be satisfied. As a consequence the supply of the property made in the termination of your enterprise will not be a taxable supply and no GST is to be remitted on the supply.

Note: You are also not entitled to input tax credits for acquisitions made in relation to the termination of the enterprise.

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