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Edited version of your written advice
Authorisation Number: 1012793750519
Ruling
Subject: GST and supply of a commercial property
Question
Are you liable to pay GST if the contract of sale lists the purchase price as including GST and you are neither registered nor required to be registered for GST?
Answer
No, you are not liable to pay GST if the contract of sale lists the purchase price as including GST and you are neither registered nor required to be registered for GST.
Relevant facts and circumstances
You are neither registered nor required to be registered for GST.
You entered into a contract of sale to sell a commercial property.
You leased the commercial property for around $xxx a month. You do not carry on any other enterprise.
Your turnover has always been under the registration turnover threshold of $75,000.
You have not sold any property before and you are not in the business of selling properties.
The purchase price was negotiated on the basis that you were not registered for GST and therefore the purchase price did not include GST.
The agent prepared the contract of sale and included the words "including GST" next to the purchase price and ticked "Yes" to the question of whether the purchase price include GST at the request of the buyer regardless of being informed by you that you were not registered for GST.
You signed the contract and did not take notice of the wording believing that you did not have to pay GST.
Your solicitor informed you about the contract price included GST and you have advised them that it was a mistake made by the agent.
Your solicitor wrote to the buyer and requested the contract be rectified. But the buyer did not agree to rectify the mistake.
You have not provided a tax invoice in relation to the sale and have also informed the buyer that they cannot use the contract of sale as a tax invoice as you are neither registered nor required to be registered for GST and consequently the supply of the property was not taxable.
Reasons for Decision
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 you make the supply for consideration; in the course or furtherance of an enterprise that you carry on; the supply is connected with Australia; and 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.
Section 9-10 of the GST Act mentions that a supply is any form of supply whatsoever and includes a grant, assignment or surrender of real property.
Furthermore, section 9-20 of the GST Act provides that an enterprise includes an activity or series of activities in the form of a lease on a regular or continuous basis.
Based on the information provided, the property is located in Australia, will be sold for monetary consideration and in the course or furtherance of a commercial property leasing enterprise that you carry on. If you are registered or required to be registered for GST your supply will be taxable.
However, you advised that you are not registered for GST. Therefore, it is necessary to consider whether you are required to be registered for GST.
Section 23-5 of the GST Act provides that you are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold.
Currently the registration turnover threshold (unless you are a non-profit body) is $75,000.
Therefore, if your annual turnover meets the relevant turnover threshold, you are required to register for GST.
Division 188 of the GST Act deals with the meaning of GST turnover and whether it meets a particular turnover threshold.
Under subsection 188-10(1) of the GST Act you have an annual turnover that meets a particular turnover threshold if:
• your current annual turnover is at or above that turnover threshold, and the Commissioner is not satisfied that your projected annual turnover is below that turnover threshold; or
• your projected annual turnover is at or above that turnover threshold.
Under subsection 188-15(1) of the GST Act your current 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 that month, other than:
• supplies that are input taxed; or
• supplies that not for consideration (and are not taxable supplies under section 72-5); or
• supplies that are not made in connection with an enterprise that you carry on.
In the month that you sell the property your current annual turnover will exceed $75,000. It is therefore necessary to consider your projected annual turnover.
Goods and Services Tax Ruling GSTR 2001/7 provides the Australian Taxation Office view in relation to the meaning of GST turnover, including the effect of section 188-25 on projected annual turnover.
Paragraphs 29 and 30 of GSTR 2001/7 state:
29. Section 188-25 modifies the effect of section 188-20 by excluding certain supplies made when working out your projected annual turnover. Section 188-25 requires you to disregard the following when calculating your projected annual 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 annual 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.
Therefore, in this instance we consider that the proceeds of the sale of the commercial property are excluded from calculating your projected annual turnover. As your projected GST turnover will be below the turnover threshold you will not be required to be registered for GST.
Since you are neither registered nor required to be registered for GST, the sale of the commercial property will not satisfy all the requirements of section 9-5 of the GST Act. As a consequence, the supply of the property made in the course of transferring of ownership of a capital asset of yours will not be a taxable supply and no GST is to be included in the sale price.
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 9-10
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 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 188-25
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