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Edited version of your written advice

Authorisation Number: 1012732190306

Ruling

Subject: Whether sale of land is a taxable supply

Question

Is the Superannuation Fund (Fund) required to account for GST on the sale of a piece of land (Lot B) where:

Answer

No, the Fund is not required to account for GST on the sale of Lot B where:

Relevant facts:

The Fund has an Australian Business Number (ABN) but is not registered for GST.

The Fund owns a property which, prior to subdivision, comprised a dwelling and appurtenant land.

The Fund derives income from the dwelling.

Recently the Fund subdivided the property into two lots. Lot A comprises the dwelling and part of the land and Lot B comprises vacant land.

The Fund intends to sell Lot B and use the proceeds to pay a benefit to a member of the Fund.

The Fund's adviser confirmed that the Fund is a complying superannuation fund within the meaning of subsection 45(1) of the Superannuation Industry (Supervision) Act 1993.

Relevant legislative provisions

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

Reasons for decision

Summary

The Fund is not liable to account for GST in respect of the supply of Lot B. The supply of Lot B will not be a taxable supply because paragraph 9-5(d) of the GST Act (i.e. the Fund is registered for GST or liable to be so registered) is not satisfied.

Detailed reasoning

Taxable supply:

Subsection 7-1(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that GST is payable on taxable supplies and taxable importations. Section 9-5 of the GST Act states that an entity ('you') makes a taxable supply if:

Supply made for consideration:

The sale of Lot B will satisfy paragraph (a) of the 'taxable supply' definition as it was stated in the ruling request that the Fund intends to sell Lot B.

Supply made in the course or furtherance of an enterprise:

In relation to paragraph (b) of the 'taxable supply' definition (the supply is made in the course or furtherance of an enterprise that you carry on), section 195-1 of the GST Act states that 'enterprise' has the meaning given by section 9-20 of the GST Act and that 'carrying on' an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

Paragraph 9-20(1)(da) of the GST Act states that an 'enterprise' is an activity, or series of activities, done:

Section 195-1 of the GST Act defines 'complying superannuation fund' as having the meaning given by section 995-1 of the ITAA 97, section 995-1 of the ITAA 97 states that 'complying superannuation fund' means a complying superannuation fund within the meaning of section 45 of the Superannuation Industry (Supervision) Act 1993 (SISA), and subsection 45(1) of the SISA states:

Paragraphs 98 to 100 of Miscellaneous Taxation Ruling MT 2001/6 indicate that where a superannuation fund is a 'complying superannuation fund', any activity or series of activities done by the trustee or person managing the complying superannuation fund is an 'enterprise' for GST purposes. On the other hand, if a superannuation fund is not a 'complying superannuation fund', whether or not the fund is carrying on an enterprise will depend on the application of paragraphs (a) to (c) of subsection 9-20(1) of the GST Act (e.g. whether there is an activity or series of activities done in the form of a business etc.):

This view is repeated in paragraph 7 of Goods and Services Tax Determination GSTD 2006/6:

In the present case the Fund's adviser confirmed that the Fund is a complying superannuation fund. Subsection 9-20(1) states that an enterprise is 'an activity, or series of activities, done by a trustee or person who manages a complying superannuation fund. Consequently it is necessary to determine whether the proposed transaction in the present case is 'an activity, or series of activities'.

Paragraph 153 of MT 2006/1 states:

Example 15 in MT 2006/1 discusses activities associated with the sale of real property:

Paragraph 163 in Example 15 suggests that in the present case, where land has been subdivided into two lots with the intention of selling one lot, the steps leading up to the sale of the subdivided lot constitute 'a series of activities' for the purpose of the 'enterprise' definition in subsection 9-20(1) of the GST Act. We therefore consider that there is a series of activities done by a trustee or person who manages a complying superannuation fund and that the sale of Lot B will be a supply made in the course or furtherance of an enterprise within the meaning of paragraph 9-5(b) of the GST Act.

Connected with Australia:

The sale of Lot B will satisfy paragraph (c) of the 'taxable supply' definition (the supply is connected with Australia) as Lot B is situated in Australia and subsection 9-25(4) of the GST Act states that a supply of real property (defined to include any interest in or right over land) is connected with Australia if the real property, or the land to which the real property relates, is in Australia.

Fund is registered or required to be registered:

Paragraph 9-5(d) of the GST Act states that an entity makes a taxable supply if that entity is registered for GST or required to be so registered.

The Fund has an ABN but is not registered for GST.

Section 23-5 of the GST Act states:

(a) you are carrying on an enterprise; and

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

For the reasons set out above we consider that the Fund is carrying on an enterprise and therefore satisfies paragraph 23-5(a).

Pursuant to paragraph 23-15(1)(b) of the GST Act and regulation 23-15.01 of the A New Tax System (Goods and Services Tax) Regulations 1999 the registration turnover threshold is $75,000.

Section 188-10 of the GST Act sets out the circumstances in which an entity's GST turnover meets or does not meet a turnover threshold:

(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.

 

(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.

Subsection 188-15(1) of the GST Act sets out a general definition of 'current GST turnover', i.e. at a time during a particular month the sum of the values of all the supplies that an entity has made, or is likely to make, during the 12 months ending at the end of that month (subject to certain exclusions).

Section 188-25 sets out a general definition of 'projected annual turnover', i.e. at any time during a particular month the sum of the values of all the supplies that an entity has made or is likely to make during that month and the next 11 months (subject to certain exclusions).

The supplies that are excluded from the calculation of current GST turnover and projected GST turnover include supplies that are input taxed, supplies that are not for consideration, and supplies that are not connected with Australia. In addition, section 188-25 of the GST Act states:

In working out your projected GST turnover, disregard:

In relation to paragraph (a) of section 188-25 paragraph 31 of Goods and Services Tax Ruling GSTR 2001/7 states that 'capital assets' may be described as 'the business entity, structure or organisation set up or established for the earning of profits' and paragraph 32 states that capital assets include tangible assets 'such as your factory, shop or office, your land on which they stand'. Paragraphs 34 to 36 of GSTR 2001//7 explain the difference between capital assets and revenue assets - a asset is a revenue asset where the realisation of that asset is incidental to the carrying on of a business or where the disposal of that asset is the means by which an entity derives income.

In the present case the means by which the Fund will derive income will include the realisation of an asset, i.e. the sale of Lot B. Paragraphs 35, 46 and 47 of GSTR 2001/7 discuss whether an isolated transaction or dealing with a single asset is excluded from an entity's projected GST turnover:

In the present case the ruling request did not suggest that the Fund acquired the dwelling and appurtenant land for resale at a profit but rather in order to derive income from the dwelling on the property.

There is also guidance as to whether an isolated sale of real property is the mere realisation of a capital asset in paragraphs 262 to 302 of MT 2006/1, based on factors derived from Statham & Another v FCT 89 ATC 4070 and Casimaty v FCT 97 ATC 5135. We consider that the present case is closer to the examples of one-off subdivisions that are stated to be mere realisations of capital assets in paragraphs 288 to 302 of MT 2006/1, particularly Example 33:

We therefore consider that, for the purposes of subsection 188-10(2) of the GST Act, the Fund has a GST turnover that does not exceed the registration turnover threshold because, per paragraph 188-10(2)(b), the Fund's projected GST turnover is below the registration turnover threshold. Consequently the Fund is neither registered for GST nor liable to be so registered as required by paragraph 9-5(d) of the GST Act, the supply of Lot B by the Fund will not be a taxable supply, and the Fund will not be liable to account for GST in respect of that supply.


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