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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your private ruling

Authorisation Number: 1012478506220

Ruling

Subject: Is the supply of properties a taxable supply

Question:

Is your supply of properties situated at the specified location a taxable supply of new residential premises?

Decision:

No.

Relevant facts and circumstances

You are the owners of properties situated at the specified address as joint tenants.

You are not currently registered for GST.

You purchased the land on which the properties are situated, subdivided the land and constructed the premises.

You did not claim any input tax credits during the construction of the premises.

You began renting the properties out.

Your intention at the time of purchasing the land and constructing the premises was to rent them out as a regular source of income.

You may need to sell these properties due to a downturn in your business.

You hold a portfolio of property investments, all of which you have held long-term.

The properties in question have never been held out for sale.

You have not sold any other properties to unrelated entities in the last decade.

After you sell the properties in question, you do not have any intention to sell any other properties.

Since completion of the premises, you have not made any improvements to them.

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 Subsection 9-20(1),

A New Tax System (Goods and Services Tax) Act 1999 Section 9-40,

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

A New Tax System (Goods and Services Tax) Act 1999 Section 23-15,

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 188-10(1)(b),

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

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

Reasons for decision

Under section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you must pay the GST payable on any taxable supplies that you make.

Under section 9-5 of the GST Act, you make a taxable supply if:

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

In this case, of relevance for consideration is paragraph 9-5(d) of the GST Act. That is, whether your supply of the property will require you to be registered for GST.

Section 23-5 of the GST Act states that you are required to be registered if:

Under section 23-15 of the GST Act, the GST registration turnover threshold is currently $75,000. You are carrying on an enterprise of leasing properties and will be required to register for GST if your GST turnover meets this turnover threshold.

Paragraph 188-10(1)(b) of the GST Act provides that an entity's GST turnover meets a particular threshold if the entity's current or projected GST turnover is at or above the turnover threshold. Section 188-20 of the GST Act states that 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 eleven months. 

Subsection 188-25(a) of the GST Act, however, excludes certain supplies from your projected GST turnover calculations. It states that in working out your projected GST turnover, you disregard any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours.

Paragraphs 32 - 34 of Goods and Services Tax Ruling GSTR 2001/7 Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover discuss what constitutes capital assets.

Paragraphs 247, 249 and 252 to 254 of Miscellaneous Tax Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number further discuss the differences between capital and revenue assets:

You are considering selling properties which you have held and rented for the specified amount of time. You do not have any history of building and selling properties within a short timeframe and have no intention to sell any other properties within your portfolio. You stated that since completion of the properties, you have not made any improvements to them. You also stated that you may need to sell these properties due to a downturn in your business. As your intention when buying the land and constructing the properties, was to rent them out, you did not claim any associated input tax credits. The combination of these facts indicates that the properties you are considering selling are capital assets. This is because their realisation is not inherent in, or incidental to, the carrying on of your enterprise.

As the properties are considered to be capital assets, they will be excluded from your projected turnover calculations. Provided that any other enterprise you carry on does not put your current or projected GST turnover beyond $75,000, you will not be required to be registered for GST.

As you are not registered or required to be registered for GST, you will not be making a taxable supply. Therefore, your supply of the properties will be input-taxed.


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