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Edited version of your written advice
Authorisation Number: 1012815589025
Ruling
Subject: GST and the sale of commercial premises
Question
Will you be required to charge GST on the sale of the Property?
Answer
No.
Relevant facts and circumstances
You and your spouse and are not registered for GST.
Around 20XX, you purchased commercial premises (the Property) in equal shares.
The Property is zoned Industrial.
You acquired the Property as an investment asset. Your intention was to renovate the Property and then lease it.
You have never leased the Property or used it for any purpose.
You have been renovating the property on a part-time basis since its acquisition. The renovations have included rewiring, new plumbing, plastering, new bathroom and new kitchen. An internal wall was removed to open up the boardroom space.
You funded the purchase of the Property with the proceeds of a redundancy Entity B received and a loan. You borrowed slightly more money than required when you purchased the Property and have used this money to fund the renovations.
You are now selling the Property.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 Section 9-5, and
A New Tax System (Goods and Services Tax) Act 1999 Section 9-20.
Reasons for decision
In this reasoning, please note:
• unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)
• all terms marked by an asterisk are defined terms in the GST Act
• all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on ato.gov.au
You must pay the GST payable on any taxable supply that you make.
Section 9-5 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.
You will sell the Property in Australia for consideration satisfying paragraphs 9-5(a) and (c).
The relevant issues are whether you are carrying on an enterprise and whether you are required to be registered for GST.
Enterprise
Subsection 9-20(1) states:
(1) An enterprise is an activity, or series of activities, done:
(a) in the form of a *business; or
(b) in the form of an adventure or concern in the nature of trade; or
…
Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) considers the meaning of carrying on an enterprise.
You acquired the Property in 20XX as an investment asset with the intention of renovating the Property and then leasing it.
Your actual application of the Property has been to renovate the Property and then list the Property for sale. You have not leased the Property or used it for any other purpose since acquisition.
We do not consider that you are carrying on a commercial leasing enterprise as you have not attempted to lease the Property since its acquisition in 20XX.
However, we need to consider if the activity of renovating and selling your property amounts to an enterprise.
Paragraphs 262 and 263 of MT 2006/1 state:
Isolated transactions and sales of real property
262. The question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions.
263. The issue to be decided is whether the activities are an enterprise in that they are of a revenue nature as they are considered to be activities of carrying on a business or an adventure or concern in the nature of trade (profit making undertaking or scheme) as opposed to the mere realisation of a capital asset. ...
We consider that an enterprise may consist of an isolated transaction or a dealing with a single asset. For example, an enterprise may consist solely of the acquisition and refurbishment of a suburban shop for resale at a profit. Where an entity engages in acquiring a single asset for resale at a profit, the activity will be an enterprise under paragraph 9-20(1)(b), because it is an activity in the form of an adventure in the nature of trade.
If a commercial property is purchased and refurbished for the purpose of resale at a profit, the commercial property is not a capital asset.
We have taken into consideration the following information:
• Your intention when you bought the commercial property was to renovate and gain rental income rather than make a profit from selling the property.
• Your renovation activities were carried out on a part-time basis over a period of around X years.
The length of time you have taken to renovate the Property is not indicative of a businesslike approach. Further, the length of time you have taken to renovate the Property and your original intention for the Property to be an investment, do not indicate that you purchased the Property with a view to selling it at a profit, or to carry out a one-off profit-making activity.
We do not consider that you are carrying on an enterprise. Therefore, you do not satisfy paragraph 9-5(b).
As you do not satisfy paragraph 9-5(b) you will not be making a taxable supply when you sell the Property. Accordingly, you will not be required to charge GST on the sale of the Property.
Further information
On this occasion, we do not consider that you are carrying on an enterprise. However, if you were to undertake another renovation, with a view to achieving a profit, we may regard you as being in the business of property renovation.
If you lease the Property, you will be conducting an enterprise for GST purposes.
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 $75,000).
Your GST turnover will meet the registration turnover threshold if:
a) your current GST turnover is at or above the threshold ($75,000) and the Commissioner is not satisfied that your projected GST turnover is below $75,000, or
b) your projected GST turnover is at or above $75,000.
Paragraph 188-25(a) provides that when calculating your projected turnover you disregard any supply made, or likely to be made, by way of transfer of ownership of a capital asset of yours.
On the present facts, the sale of the Property would be the transfer of ownership of a capital asset and you would not need to include the sale price in your projected turnover calculation when determining if you are required to be registered for GST.
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