Edited version of private advice

Authorisation Number: 1012651709692

Ruling

Subject: GST and sale of real property

Question

Are you making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you sell your property at a specified address in Australia (the Property)?

Advice/Answers

No, you are not making a taxable supply when you sell the Property and GST is not payable on the supply.

Relevant facts and circumstances

You are a partnership 'A & B' and you are registered for GST. The partnership was formed by individuals A and B. Even though your turnover has always been below the GST turnover threshold, you registered for GST and charge/receive GST on the rent.

You are proposing to sell a property located at the specified address in Australia (the Property) and on ddmmyyy requested clarification regarding the GST consequences if you were to cancel your GST status and sell the Property at a later date. You have since cancelled your GST registration effective from the beginning of the current month stating the cancellation was made due to the fact that your turnover does not exceed $75,000.

The Property was purchased over N number of years ago. Details in relation to the Property are:

• The Property is on a single certificate of title - lot 111 in deposited plan 1234567.

• The property is around X acres in land size.

• The land was zoned as rural up until 2 years ago but is has been rezoned as commercial.

For the past few years you have used the Property in a specified activity. The whole of the Property is used in the activity.

You propose to sell the Property in a one sale transaction. The land will not be subdivided or developed prior to the sale and no development activities have been carried out on the Property. The land will not be sold with a development approval.

You have buyers who are showing an interest in the Property. Currently, there is no contract entered into or prepared for the sale of the Property.

A and B had lived on the Property but had moved away a few years ago as it was their plan then to sell the Property. They have bought another property to reside in at a specified address.

The only other property owned by A and B is the other property which is their current place of residence.

The residence on the Property that A and B previously resided in is still in existence on the Property. Other improvements on the Property are sheds of a specified number of years old.

Other than the activity for which the land was used, you did not carry on any other business activities previously or currently.

You have provided a copy of the following documents in relation to the Property:

• Certificate of title

• Rates and charges notice for ddmmyyyy to ddmmyyyy issued by a specified City Council - lot 111 DP 1234567

• Rates and charges notice for ddmmyyyy to ddmmyyyy issued by a specified City Council - lot 222 DP 12345

The names of the owners of the Property as stated on the certificate of title are recorded as:

A

BB

The rates and charges notice were issued by the specified City Council to BB & A

You have confirmed that BB and B are one and the same person, and that the inconsistency in the name was common to people who migrate from a specified country.

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 23-5

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

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

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision

Note: 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 referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

• all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

Section 9-5 states that you make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with Australia; and

(d) 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.

You are proposing to sell a property located at the specified address in Australia (the Property) and on ddmmyyyy you requested clarification from the Australian Taxation Office regarding the GST consequences if you were to cancel your GST status and sell the Property at a later date. However, you have since cancelled your GST registration effective from ddmmyyyy stating that the cancellation was made on the fact that your turnover does not exceed $75,000.

As stated earlier, in determining whether an entity is making a taxable supply, among other requirements, paragraph 9-5(d) requires that the entity making the supply is either registered for GST, or required to be registered for GST, under the GST Act.

As you have recently cancelled your GST registration, it is relevant to determine if you are 'required to be registered' for GST in relation to the sale of the Property.

Under section 23-5, you are required to be registered under the GST Act if:

(a) you are *carrying on an *enterprise; and

(b) your *GST turnover meets the *registration turnover threshold.

Currently, the GST registration turnover threshold (other than for non-profit bodies) is $75,000.

In your case, you are carrying on a specified enterprise. Accordingly, paragraph 23-5(a) is satisfied.

In applying paragraph 23-5(b), it is relevant to consider the definition of the term 'GST turnover'. Under section 195-1, GST turnover means:

(a) in relation to meeting a *turnover threshold-has the meaning given by subsection 188-10(1); and

(b) in relation to not exceeding a *turnover threshold-has the meaning given by subsection 188-10(2).

Subsections 188-10(1) and (2) state:

(1) You have a GST turnover that meets a particular *turnover threshold if:

(a) 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

(b) your projected GST turnover is at or above the turnover threshold.

(2) You have a GST turnover that does not exceed a particular *turnover threshold if:

(a) 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

(b) your projected GST turnover is at or below the turnover threshold.

To determine your GST turnover, it is also necessary to consider the following provisions of the GST act:

Subsection 188-15(1), which states that your current 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 the 12 months ending at the end of that month, other than certain supplies which are not required to be included.

Subsection 188-20(1), which 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 11 months, other than certain supplies which are not required to be included.

Section 188-25, which states that transfer of capital assets and termination etc. of enterprise are to be disregarded:

In working out your *projected GST turnover, disregard:

(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.

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 (GSTR 2001/7) provides guidelines on issues relating to GST turnover. The ruling states:

30. Your projected GST 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)...

You cancelled your GST registration at the start of this month (ddmmyyy) stating that the cancellation was made on the fact that your turnover does not exceed $75,000. Based on this information, we are satisfied your current GST turnover is below the GST registration threshold of $75,000.

The Property is used in a specified activity. Therefore, we consider the Property is a capital asset used in your specified enterprise. Accordingly, when you sell the Property, paragraph 188-25(a) will apply to disregard the sale consideration in working out your projected GST turnover. This means your projected GST turnover will be below the GST registration turnover threshold and paragraph 23-5(b) is not satisfied to require you to be registered for GST in relation to the sale of the Property.

As you are currently not registered for GST and not required to be registered for GST in relation to the sale of the Property, the sale transaction will be out of scope of the GST Act. Accordingly, you are not making a taxable supply under section 9-5 when you sell your property at the specified address. GST is not payable on the supply.

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