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Edited version of your written advice
Authorisation Number: 1012740681232
Ruling
Subject: GST and mixed supply of property
Question
Will you be required to pay goods and services tax (GST) on the commercial portion of your mixed use property when you sell?
Answer
No.
Relevant facts and circumstances
• You were registered for GST from 20XX until 20XX.
• You own a property in Australia (the property).
• The property is mixed use with a shop downstairs and residential premises upstairs.
• In 20XX you and an associate purchased the property in partnership.
• In 20XX you commenced a business which you operated out of the shop in the commercial portion of the property. At this time the upstairs residential property was leased to an employee.
• In 20XX you moved into the upstairs residential property after the tenant/employee vacated the premises.
• In 20XX the remaining share of the property was transferred to you for no consideration. You did not claim a GST credit.
• The partnership between yourself and the other entity was finalised after the transfer of the property.
• You sold your business in 20XX as a taxable supply.
• You presently lease out the shop and (commercial premises) portion of the property. The income is below the GST turnover registration threshold of $75,000.
• You intend to sell the property in the future and wish to know whether you will be required to re-register for GST and remit GST on the commercial portion of the property.
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 9-40
A New Tax System (Goods and Services Tax) Act 1999 Section 23-5
A New Tax System (Goods and Services Tax) Act 1999 Section 188-10
A New Tax System (Goods and Services Tax) Act 1999 Paragraph 188-25(a)
Reasons for decision
You must pay the GST on any taxable supply that you make.
Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you make a taxable supply if:
a) you make the supply for consideration
b) the supply is made in the course or furtherance of an enterprise that you carry on
c) the supply is connected with Australia, and
d) you are registered, or required to be registered for GST.
However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.
You are carrying on a leasing enterprise and will sell the property in Australia for consideration. Therefore, you will satisfy requirements (a), (b) and (c) of a taxable supply above. However, as you are not registered for GST, the main issue is to determine if you would be required to be registered.
You are required to be registered for GST under section 23-5 of the GST Act if your GST annual turnover meets or exceeds the registration turnover threshold of $75,000.
Your expected income from the leasing enterprise is below $75,000. However, it is necessary to determine if the expected sale proceeds from the portion of property relating to the shop would be are included when calculating your GST registration turnover threshold.
Paragraph 188-10(1)(a) of the GST Act provides that your GST turnover will meet the registration turnover threshold if 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.
Of relevance to your circumstances is whether the Commissioner is satisfied that your projected GST turnover is below the turnover threshold, due to the proposed sale of the property.
Paragraph 188-25(a) of the GST Act provides that in working out your projected GST turnover, any supply made or likely to be made by you by way of transfer of ownership of a capital asset is disregarded when working out your projected GST turnover.
As the property is a capital asset, the sale will be disregarded when calculating your projected GST turnover.
Therefore, on the basis of the information provided your projected GST turnover will be below $75,000 and you will not be required to be registered for GST.
As one of the requirements of section 9-5 is not satisfied, the sale of the property is not a taxable supply.
You will not be required to pay GST on the sale of the commercial portion of your mixed-use property.
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