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Ruling

Subject: GST and requirement to register

Questions

1. Are you required to register for goods and services tax GST) as a consequence of owning 100% of the issued capital in an investment company?

2. Will you be required to be registered for GST as a result of selling the commercial property that you own?

Answers

No, you are not required to register for GST as a consequence of owning 100% of the issued capital in an investment company.

No, you will not be required to be registered for GST as a result of selling the commercial property that you own.

Relevant facts and circumstances

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

You own 100% of the issued capital in an investment company that is registered for GST. The investment company owns and leases a commercial property for which it receives rental in excess of $75,000.

Your other assets include cash and a commercial property which was rented for less than $75,000 per annum to an unrelated entity. This property has been vacant for several months and is not currently advertised for lease.

You intend to sell the commercial property that you own and expect the settlement to occur within the next 11 months.

You do not carry on any other enterprise. At this stage, you do not intend to acquire another property to lease or carry on any other enterprise.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 23-5,

A New Tax System (Goods and Services Tax) Act 1999 section 48-10,

A New Tax System (Goods and Services Tax) Act 1999 section 188-10,

A New Tax System (Goods and Services Tax) Act 1999 section 188-15,

A New Tax System (Goods and Services Tax) Act 1999 section 188-20 and

A New Tax System (Goods and Services Tax) Act 1999 section 188-25.

Reasons for decisions

Question 1

Section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

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.

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

In this case, you are carrying on an enterprise of leasing your property, despite that it is currently vacant. 'Carrying on' an enterprise includes doing anything in the course of the commencement or termination of the enterprise. Paragraph 23-5(a) of the GST Act is satisfied.

For the purpose of paragraph 23-5(b) of the GST Act subsection 188-10(1) of the GST Act provides that your GST turnover meets the registration turnover threshold if:

· 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

· your projected GST turnover is at or above the turnover threshold.

Currently, the registration turnover threshold is $75,000 ($150,000 for non-profit entities).

You advised that your property was rented for less than $75,000 per annum and that you do not have any other enterprise.

Subsections 188-15(2) and 188-20(2) of the GST Act provide that if you are a member of a GST group, your current and projected GST turnover at a time during a particular month is the sum of the values of all the supplies that you or any other member of the group have made or are likely to make (other than supplies specified in those subsections).

One of the membership requirements of a GST group is that an entity must be registered for GST. You advised that you are not registered for GST. This indicates that you are not a member of a GST group. As such, subsections 188-15(2) and 188-20(2) of the GST Act do not apply.

Your GST turnover does not include the supplies that the investment company has made or is likely to make. Therefore, your GST turnover does not meet the registration turnover threshold. The requirement in paragraph 23-5(b) of the GST Act is not satisfied. Accordingly, you are not required to be registered for GST as a consequence of owning 100% of the issued capital of the investment company.

Question 2

While your current GST turnover (from renting your property) is below the registration turnover threshold, it must be determined whether your projected GST turnover is at or above the registration turnover threshold in accordance with subsection 188-10(1) of the GST Act.

According to subsection 188-20(1) of the GST Act, an entity's projected GST turnover at a time during a particular month is the sum of the values of all of the supplies that it has made, or is likely to make, during that month and the next 11 months (other than supplies specified in that subsection).

As you propose to sell your commercial property and expect the settlement date to occur within the next 11 months, it must be determined whether the sale is included in calculating your projected GST turnover.

Section 188-25 of the GST Act provides that in working out an entity's projected GST turnover, the following are disregarded:

(a) any supply made, or likely to be made, by the entity by way of transfer of ownership of a capital asset of the entity; and

(b) any supply made, or likely to be made, by the entity solely as a consequence of:

· ceasing to carry on an enterprise; or

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

Generally, the term 'capital assets' refers to those assets that make up the 'profit yielding subject' of an enterprise and can include factory, shop, office and your land which are retained by you to produce income. In this case, you own the commercial property and use it to generate rental income; as such, the commercial property is a capital asset of yours. Therefore, the sale of the commercial property is disregarded in calculating your projected GST turnover.

The proceeds of the sale of the commercial property would not increase your GST turnover to meet the registration turnover threshold. The requirement in paragraph 23-5(b) of the GST Act is not satisfied. Therefore, you will not be required to register for GST as a result of selling your commercial property.

Additional information

Note that an entity's current and projected GST turnover is calculated at any time during a particular month. You must continually monitor your GST turnover to determine if you are required to be registered for GST.

If, on or before the settlement of the contract for sale of the commercial property, your GST turnover meets the registration turnover threshold because of another enterprise that you will carry on, you will be required to be registered for GST and may be liable for GST on the sale.

The sale of the commercial property may also be subject to GST if, on or before the settlement date, you voluntarily register for GST for any reason. For instance, you register (even if your GST turnover does not meet the registration turnover threshold) to satisfy the membership requirements of a GST group.

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