Edited version of your written advice

Authorisation Number: 1012708966852

Ruling

Subject: Goods and services tax (GST) and sale of property

Question 1

Will GST be payable on the sale of property X?

Answer

GST will not be payable on the sale of property X unless individual A, in their capacity as executor for the deceased estate of individual B, chooses to register for GST by the time of settlement of sale.

Question 2

Is individual A, in their capacity as executor for the deceased estate of individual B, required to be registered for GST?

Answer

No.

Question 3

Is individual A, in their capacity as executor for the deceased estate of individual B, entitled to be registered for GST?

Answer

Yes.

Relevant facts and circumstances

Individual A, in their capacity as executor for the deceased estate of individual B, is not registered for GST.

Individual A, in their capacity as executor for the deceased estate, holds a property located in Australia (property X). It comprises commercial premises and uninhabitable former dwellings.

Individual B purchased property X in a certain year.

Individual B operated a business from property X from a certain year to a certain year. Then there was a big gap in time during which no one used the property. Then individual B allowed company C to use the property in its business rent free. Individual A, in their capacity as executor for the deceased estate, has been allowing company C to occupy the property rent free.

Company C continues to operate a business from property X. Company C is registered for GST. Individual A is a director of company C.

Individual B also owned a residence at another location. This residence was individual B's home. This property was sold a long time ago.

Individual A, in their capacity as executor of the deceased estate, will sell property X.

Individual A, in their capacity as executor of the deceased estate, will not earn $75,000 or more in the 12 month period beginning with the month of settlement of sale of property X (if the sale of property X was excluded).

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-20(1)(a)

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 23-10

A New Tax System (Goods and Services Tax) Act 1999 section 40-65

A New Tax System (Goods and Services Tax) Act 1999 section 72-5

A New Tax System (Goods and Services Tax) Act 1999 subsection 184-1(3)

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-10(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-15(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-20(1)

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

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

Reasons for decisions

Question 1

Summary

GST is not payable on the sale of property X because the vendor is not registered for GST and will not be required to be registered for GST.

Detailed reasoning

GST is payable on taxable supplies.

You make a taxable supply if you meet the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states:

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.

(*Denotes a term defined in section 195-1 of the GST Act)

In accordance with subsection 184-1(3) of the GST Act, a person can have a number of different capacities in which the person does things. In each of those capacities, the person is taken to be a different entity for GST purposes. For example, where an individual is the trustee of a trust, the individual in his or her personal capacity is one entity. As trustee of a particular trust, he or she is a different entity.

The executor of a deceased estate is a trustee of the deceased estate trust.

The sale of the property X will meet the requirements of paragraphs 9-5(a) and 9-5(c) of the GST Act. This is because the sale of the property will be a supply made for consideration and the property is located in Australia.

Individual A, in their capacity as executor of the deceased estate, is not registered for GST.

There are no provisions in the GST Act under which the sale of property X will be GST-free or input taxed. In accordance with paragraph 20 of Goods and Services Tax Ruling GSTR 2012/5, the sale of the property will not be partly input taxed under the sale of residential premises exemption (section 40-65 of the GST Act) because the dwelling style premises on the property are no longer inhabitable.

Therefore, what remains to be determined is whether the sale will be made in the course or furtherance of an enterprise that individual A, in their capacity as executor of the deceased estate, carries on and whether individual A, in their capacity as executor of the deceased estate, is required to be registered for GST.

Sale made in course or furtherance of enterprise

In accordance with paragraph 9-20(1)(a) of the GST Act, enterprise includes an activities or series of activities done in the form of a business.

In accordance with section 195-1 of the GST Act, carrying on an enterprise includes anything done in the course of the termination of an enterprise, for example, selling assets as part of the winding up of the enterprise.

In accordance with paragraph 146 of MT 2006/1, where the only activities performed by an entity are those that is does in terminating the enterprise, for example, the sale of its business premises, those activities are nevertheless done in carrying on an enterprise.

Individual B used property X as their business premises.

Taxation Ruling IT 2622 explains that upon the death of a person, the property of the deceased passes to their estate, the legal control over which is exercised by an executor or an administrator. The executor or administrator, in effect, steps into the shoes of the deceased and winds up the deceased's personal affairs.

Therefore, it is considered that the winding up of an enterprise that the deceased carried on, performed by an executor or administrator upon the death of the deceased, will still be part of the carrying on of the deceased's enterprise.

Individual A holds property X in their capacity as executor of the deceased estate.

The sale of property X will be something done in the course of the winding up individual B's enterprise. Hence, the sale of property X will be a supply made in the course or furtherance of an enterprise individual A, in their capacity as executor of the deceased estate, carries on. Therefore, individual A, in their capacity as executor of the deceased estate, meets the requirement of paragraph 9-5(b) of the GST Act.

GST registration

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

(a) the entity is carrying on an enterprise, and

(b) the entity's GST turnover meets the registration turnover threshold.

Individual A, in their capacity as executor for the deceased, is carrying on an enterprise. Therefore, the requirement of paragraph 23-5(a) of the GST Act is met.

Subsection 188-10(1) of the GST Act states:

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.

In accordance with subsection 188-15(1) of the GST Act, an entity's current GST turnover at a time during a particular month is the sum of the values of all the supplies that the entity has made, or is likely to make, during the 12 months ending at the end of that month, other than:

(a) supplies that are input taxed; or

(b) supplies that are not made for consideration (and are not taxable supplies under section 72-5 of the GST Act); or

(c) supplies that are not made in connection with an enterprise that the entity carries on.

In accordance with 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 the supplies that the entity has made, or is likely to make, during that month and the next 11 months, other than:

(a) supplies that are input taxed; or

(b) supplies that are not made for consideration (and are not taxable supplies under section 72-5 of the GST Act); or

(c) supplies that are not made in connection with an enterprise that the entity carries on.

In accordance with paragraph 188-25(a) of the GST Act, a sale of a capital asset is excluded from projected GST turnover.

Paragraphs 31 to 36 of Goods and Services Tax Ruling GSTR 2001/7 discuss the meaning of capital asset. They state:

31. The GST Act does not define the term 'capital assets'. Generally, the term 'capital assets' refers to those assets that make up 'the profit yielding subject' of an enterprise. They are often referred to as 'structural assets' and may be described as 'the business entity, structure or organisation set up or established for the earning of profits'.

32. 'Capital assets' can include tangible assets such as your factory, shop or office, your land on which they stand, fixtures and fittings, plant, furniture, machinery and motor vehicles that are retained by you to produce income. 'Capital assets' can also include intangible assets, such as your goodwill.

33. Capital assets are 'radically different from assets which are turned over and bought and sold in the course of trading operations'. An asset which is acquired and used for resale in the course of carrying on an enterprise (for example, trading stock) is not a 'capital asset' for the purposes of paragraph 188-25(a).

34. 'Capital assets' are to be distinguished from 'revenue assets'. A 'revenue asset' is 'an asset whose realisation is inherent in, or incidental to, the carrying on of a business'.

35. If the means by which you derive income is through the disposal of an asset, the asset will be of a revenue nature rather than a capital asset even if such a disposal is an occasional or one-off transaction. Isolated transactions are discussed further at paragraphs 46 and 47.

36. Over the period that an asset is held by an entity, its character may change from capital to revenue or from revenue to capital. For the purposes of section 188-25 the character of an asset must be determined at the time of expected supply.

Individual B held property X as a capital asset as they retained it to produce income from their business. The character of the asset has not changed to that of a trading asset since the time they ceased operating this business.

Therefore, the sale of property X is excluded from projected GST turnover.

Individual A, in their capacity as executor of the deceased estate, will not earn $75,000 or more in the 12 month period beginning with the month of settlement of sale of property X (not including the sale of property X). Therefore, individual A, in their capacity as executor of the deceased estate, will not have a GST turnover of $75,000 or more at the time of sale of property X.

(The associate provision - section 72-5 of the GST Act does not apply to the supply that individual A, in their capacity as executor of the deceased estate, makes to company C (the licence to occupy property X) because company C is registered for GST and it acquires the right to occupy the property solely for a creditable purpose. Therefore, the GST turnover calculations relating to individual A, in their capacity as executor of the deceased estate, should not include a notional rent amount.)

As individual A, in their capacity as executor for the deceased estate, will not have a GST turnover of $75,000 or more at the time of sale of property X, the requirement of paragraph 23-5(b) of the GST Act will not be met.

As individual A, in their capacity as executor of the deceased estate, does not meet all of the requirements of section 23-5 of the GST Act, individual A, in their capacity as executor of the deceased estate, will not be required to be registered for GST at the time of sale of property X.

Section 23-10 of the GST Act provides that an entity is entitled to be registered for GST if it is carrying on an enterprise (regardless of the level of GST turnover).

Individual A, in their capacity as executor for the deceased estate, is entitled to be registered for GST because individual A, in their capacity as executor for the deceased estate is carrying on an enterprise by selling the premises from which individual B formerly operated a business.

As individual A, in their capacity as executor of the deceased estate, is not registered and not required to be required to be registered for GST, the requirement of paragraph 9-5(d) of the GST Act is not met.

As not all of the requirements of section 9-5 of the GST Act are met, the sale of property X will not be a taxable supply. Hence, GST is not payable on the sale of this property.

However, if individual A, in their capacity as executor of the deceased estate chooses to register for GST, the requirement of paragraph 9-5(d) of the GST Act will be met. Under such circumstances, all of the requirements of section 9-5 of the GST Act would be met. Therefore, the sale of property X would be a taxable supply under such circumstances. Hence, GST would be payable on the sale under such circumstances.

In summary, whether or not the sale of property X is subject to GST depends on whether individual A, in their capacity as executor of the deceased estate, chooses to register for GST.

Question 2

See reasons for decision for question 1.

Question 3

See reasons for decision for question 1.

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