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Ruling

Subject: sale or real property

Question

Are you liable for goods and services tax (GST) on the sale of a capital asset?

Answer:

No

Relevant facts:

You are currently carrying on an enterprise.

You are not registered for the goods and service tax (GST).

You are currently not required to be registered for GST as your GST turnover is less than the registration turnover threshold.

You want to terminate your enterprise and are carrying out the activities to cease the enterprises.

You expect to receive an amount in excess of $ 75,000 from the disposal of the capital asset

Reasons for decision

You pay GST on taxable supplies you make. Under section 9-5 of the GST Act, you make a taxable supply if:

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

The supply of the capital asset is not GST-free nor input taxed. Therefore we have to consider whether the supply satisfies the criteria in section 9-5 of the GST Act to be a taxable supply. The criteria in section 9-5 of the GST Act are:

The meaning of enterprise is explained in the Miscellaneous Taxation Ruling MT 2006/1. Paragraph 140 of MT 2006/1 states

You advised that you want to terminate your enterprise and are carrying out the activities to dispose the capital assets as part of the termination

Where you are required to be registered and the supply satisfies the criteria in section 9-5 of the GST Act, the sale of the property is a taxable supply. However, if you are not required to be registered and the supply does not satisfy the criteria in section 9-5 of GST Act, the supply is not a taxable supply.

Registration

Whilst you are not currently registered for GST, you may be required to register for GST under section 23-5 of the GST Act if, as a result of this particular transaction, your GST turnover exceeds the registration turnover threshold (ie: $75,000).

Section 23-5 of the GST Act provides that an entity is required to register for GST if

You satisfy the first criterion as you are carrying on activities to terminate your enterprise. Next we have to consider the second criterion which is whether the sale affects your GST turnover for registration purposes.

GST turnover

The meaning of GST turnover is outlined in the Goods and Services Tax Ruling GSTR 2001/7. We enclose a copy of the ruling for your reference.

Paragraph 9 of GSTR 2001/7 is relevant when considering whether your GST turnover meets the registration turnover threshold. The paragraph states

The meaning of current GST turnover is outlined in paragraph 11 of GSTR 2001/7 which states:

The sale of your capital assets is not listed in paragraph 14 of GSTR 2001/7.

In your case, your current GST turnover exceeds the registration when you include the sale of capital asset. However, under paragraph 188-10(1)(a) of the GST Act, an entity's GST turnover meets the registration turnover threshold if the Commissioner is not satisfied that the entity's projected GST turnover is below the registration turnover threshold. Therefore, we need to work out your projected GST turnover.

Projected GST turnover

The meaning of projected GST turnover is outlined in paragraph 12 of GSTR 2001/7 which states:

In addition, when working out the projected GST turnover under section188-20 of the GST Act, we have to consider the application of section 188-25 of the GST Act on supplies of capital assets. Paragraph 29 of GSTR 2001/7 states:

Section 188-25 modifies the effect of section 188-20 by excluding certain supplies made when working out your projected GST turnover. Section 188-25 requires you to disregard the following when calculating your projected GST turnover:

The first criterion in section 188-25 of the GST Act is that it must be a supply of capital assets. The meaning of capital asset is explained in paragraphs 31 to 36 of GSTR 2001/7. Paragraph 32 of GSTR 2001/7 states:

As your asset is retained by you to produce income, we consider it is a capital asset. You are selling the capital asset as one of the activities to terminate your enterprise. Therefore, section 188-25 of the GST Act applies to the sale of the capital asset and the supply is excluded when working your projected GST turnover under section 188-20 of the GST Act.

You are currently not required to be registered for GST as your GST turnover is less than the registration turnover threshold. The sale of the capital asset does not affect your projected GST turnover. Based on this information, the Commissioner is satisfied that your projected GST turnover is below the registration turnover threshold and your GST turnover (calculated under paragraph 188-10(1)(a) of the GST Act) does not meet the registration turnover threshold. Therefore, you do not satisfy the criteria in section 23-5 of the GST Act and are not required to be registered for GST.

As you are not registered nor required to be registered for GST, the sale of capital asset is therefore not a taxable supply under section 9-5 of the GST Act.


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