Edited version of your written advice

Authorisation Number: 1012752585401

Ruling

Subject: GST and sale of commercial property

Question 1

Is the sale of the commercial property a taxable supply?

Answer

No

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

• You are individuals not registered for goods and services tax (GST).

• You previously carried on an enterprise and were registered for GST.

• You sold your enterprise to an unrelated registered entity as a going concern upon your retirement in 2014; however you retained ownership of the commercial property.

• You are now considering selling the commercial property.

• The commercial property is to be leased up to the date of sale and the entity or natural person purchasing the premise is not currently registered for GST.

• The lease is not to a related party.

• You have received income from the lease of the commercial property but the amount is below the GST registration threshold.

Your contentions

You contend that provisions within GSTR 2001/7 and section 188-25 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) excludes the sale of the commercial property from GST turnover as a capital asset.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999:

Section 9-5

Section 9-10

Section 23-5

Section 188-25

Reasons for decision

Summary

The sale of the commercial property is the mere realisation of a capital asset and is not included in the calculation of the GST registration threshold

Detailed reasoning

Section 188-25 of the GST Act provides that the following supplies are excluded from projected GST turnover:

• sales of capital assets, and

• supplies made solely as a consequence of ceasing to carry on an enterprise.

In your case the sale of the commercial property could fall within either category.

Goods and Services Tax Ruling GSTR 2001/7 provides the Tax Office view on the meaning of GST turnover, including the effect of section 188-25 on projected GST turnover. Relevantly paragraphs 29 and 30 state:

29. Section 188-25 modifies the effect of section 188-20 by excluding certain supplies made when working out your projected GST turnover. Section 188-25 requires you to disregard the following when calculating your projected GST turnover:

(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.

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). When you make a supply that is capable of satisfying the description in both paragraphs, the supply is excluded only once. (See example 3 at paragraph 53.)

Paragraphs 31 to 33 of GSTR 2001/7 also 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).

In your situation, you carried on an enterprise on the property. Therefore, the property was held as part of your business structure set up for the earning of profits. Hence, the property was held as a capital asset for the purposes of that enterprise. The nature of the asset will not change to that of a trading asset as at the time you sell the property.

Following the sale of that enterprise you held the property as part of a leasing enterprise. You are now intending to cease that enterprise and are selling the commercial property.

Hence, the sale of the property will be excluded from the calculation of your projected GST turnover.

Your projected GST turnover will be zero when you sell the property.

As your GST turnover will be zero when you sell the property, you do not meet the requirement of paragraph 23-5(b) of the GST Act.

As you do not meet all of the requirements of section 23-5 of the GST Act, you will not be required to be registered for GST when you sell the property.

As you are not registered for GST and you will not be required to be registered for GST, you do not meet the requirement of paragraph 9-5(d) of the GST Act.

As you do not meet all of the requirements of section 9-5 of the GST Act, you will not make a taxable sale of the property. Therefore, GST will not be payable on your sale of the property.

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