Edited version of your private ruling

Authorisation Number: 1012552783098

Ruling

Subject: GST - agency and sale of property

Question

Will your supply of the property be a taxable supply?

Answer

Yes

Relevant facts and circumstances

You, entity B, are a partnership that is not registered for GST.

The partners are also the directors of entity C (the company).

On ddmmyyyy, you purchased a property located in Australia (the property).

The property purchase was funded by the sale of another property owned by the company and a business loan from a bank (the Bank) to the company.

Your intention, as directors of the company, was that the property was to be acquired by the company - not the partnership.

On ddmmyyyy, the company entered into a lease agreement with a tenant. The company was listed as the Landlord.

You subsequently realised that settlement and Land Authority registration, etc were effected in the name of the partners.

Stamp duty to transfer the property into the company name would have exceeded $xxx.

To deal with the difficulties outlined above, you and the company entered into an informal agency agreement which was later formalised in a written agency agreement which included the following key details:

THIS AGREEMENT RECORDS:

Objective

The two parties wish to formalise the previously informal agreement between them.

Terms and obligations

The Persons and the Company hereby agree the following as the terms of this Agreement.

· That the Company, being registered for GST, shall be appointed as the Agent of the Persons and shall enter into such Commercial Lease Agreements for the Property as the Company deems mutually beneficial to both the Company and the Persons, and agrees to abide by all terms of any such Agreements entered into on behalf of the Persons.

· That the Persons as Landlords shall charge the Company as the Landlords Agent an annual fee of $x, to be credited to the abovementioned "Directors Investment Loan" on the working day prior to the anniversary of the drawdown of the Loan Account (that is, ddmm).

· That this Agreement shall remain in place until the Property is sold or otherwise transferred, or that the Persons become registered for GST in their own right, and commence the business of Commercial Property Rental, paying out any residual loan accounts created during this Agreement between the Company and the Persons,

'Persons' refers to the partners.

Since acquiring the property, the company, as your agent, has continued to lease the property. The rental for the property has always exceeded the registration turnover threshold.

You do not make any taxable supplies apart from the lease of the Property.

If you are required to register for GST in order to correctly attribute the lease payments already received, you intend to deregister once the settlement date is known.

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 9-20

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 29-5

A New Tax System (Goods and Services Tax) Act 1999 section 29-10

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

A New Tax System (Goods and Services Tax) Act 1999 subdivision 153-B

Taxation Administration Act 1953 section 105-50

Taxation Administration Act 1953 section 105-55

Reasons for decision

In this ruling,

· unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

· all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website www.ato.gov.au

Section 9-40 provides that you must pay the GST payable on any taxable supply that you make.

As defined in section 9-5, a supply is taxable if it is:

· made for consideration

· made in the course of furtherance of an enterprise carried on by the entity making the supply

· connected with Australia, and

· made by an entity registered or required to be registered.

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

You are selling non residential property, located in Australia, for consideration. This will be a taxable supply if the requirements of section 9-5 are met. There is no provision of the GST Act that would make the supply of the property GST free or input taxed in your factual situation. However, the conditions for making a taxable supply include that you are carrying on an enterprise and are either registered or required to be registered for GST.

As defined in subsection 9-20(1) an enterprise includes an activity, or a series of activities, done:

· in the form of a business, or

· in the form of an adventure or concern in the nature of trade, or

· on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property; or…

The property is currently tenanted. The company, as your agent, commenced to lease the property shortly after you acquired it and has continued to lease it. This constitutes a leasing enterprise as defined in subsection 9-20(1).

Paragraphs 11 and 15 of Goods and Services Tax Ruling GSTR 2000/37: agency relationships and the application of the law (GSTR 2000/37) explain that an agent is a person who is authorised, either expressly or impliedly, by a principal to act for that principal so as to create or affect legal relations between the principal and third parties. When an agent uses his or her authority to act for a principal, then any act done on behalf of that principal is an act of the principal

As stated in paragraph 20 of GSTR 2000/37, where a principal makes a taxable supply or a creditable acquisition through an agent, the GST payable by the principal or the input tax credit to which the principal is entitled would be attributable according to the basic attribution rules set out in sections 29-5 and 29-10 unless a special attribution rule applies.

Under subdivision 153-B, entities may enter into an arrangement under which an intermediary is treated as a separate supplier and/or acquirer. That is, the intermediary is treated as a principal in its own right. One of the requirements is that both the agent and the principal must be registered and remain registered. As you are not registered, subdivision 153-B cannot apply to you. Therefore, the leasing supplies made by the company are attributable to you.

You are not registered for GST. Therefore it needs to be determined whether you are required to be registered.

As provided in section 23-5, you are required to be registered if:

· you are carrying on an enterprise, and

· your GST turnover meets the registration turnover threshold (currently $75,000).

Under section 188-10, your GST turnover is calculated with reference to your current GST turnover and your projected GST turnover.

As provided in subsection 188-10(2), your GST turnover does not exceed a particular threshold if:

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

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

The Commissioner is satisfied that, when the Company entered into the lease agreement as your agent, your projected GST turnover was above the registration turnover threshold. Accordingly, you were required to be registered for GST from ddmmyyyy.

Your GST liabilities and entitlements to input tax credits have been reported by the company. Therefore, the company will be required to amend its BAS.

You are required to report your GST liabilities and input tax credits in the relevant periods. However, your ability to correctly report will be limited by the time limits in sections 105-50 and 105-55 of the Taxation Administration Act 1953. (TAA)

To the extent that your reporting is not limited by the TAA, you are required to be registered for the relevant periods.

Supply of the Property

As set out above, you are required to be registered for GST, and you were required to be registered from mmyyyy.

While you remain registered for GST, your supply of the Property meets all of the requirements of section 9-5. It will therefore be a taxable supply.

If you dispose of the Property, although entitled to remain registered for GST, you will be able to reassess your projected GST turnover and your requirement to be registered for GST.

Under section 188-20, 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 11 months, other than:

· supplies that are input taxed; or

· supplies that are not for consideration or

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

Under section 188-25, 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.

As explained in paragraphs 31 to 36 of Goods and Services Tax Ruling GSTR 2001/7: meaning of GST turnover, including the effect of section 188-25 on projected turnover (GSTR 2001/7), the Property is a capital asset and the proceeds of the sale will not be included in your projected GST turnover..

In the month of settlement, your GST turnover will be the lease payment for that month and the consideration for the supply of the yard (which will be disregarded in calculating your projected GST turnover). Your GST turnover in the months after the sale of the Property will be zero. It follows that your GST turnover will not meet the registration turnover threshold and you will not be required to be registered for GST.

If you are not registered, the sale of your property will not be a taxable supply.

If you choose to cancel your GST registration prior to settlement, you will be required to make an increasing adjustment pursuant to section 138-5.

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