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Edited version of your written advice
Authorisation Number: 1013056167386
Date of advice: 26 July 2016
Ruling
Subject: GST and the sale of real property
Question
Will your sale of The Property be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 and subject to GST?
Answer
No.
Relevant facts and circumstances
You were registered for GST.
In YYYY you purchased the Property.
Since purchase, you have leased the Property to Entity B. Entity B has conducted a business on the Property.
Due to a downturn in the industry and reductions in rent in the last two years a decision was made for Entity B's business to close and the lease to end as at DDMMYYYY.
On DDMMYYYY you entered in to a Contract to sell the Property for $X. Settlement is expected on DDMMYYYY.
The business was not sold with 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 23-5, and
A New Tax System (Goods and Services Tax) Act 1999 Division 188.
Reasons for decision
In this reasoning:
• 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
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 the indirect tax zone; 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.
Carrying on an enterprise includes doing anything in the termination of the enterprise.
Your sale of the Property in Australia for consideration in the termination of your leasing enterprise will satisfy paragraphs 9-5(a), (b) and (c).
As you are not registered for GST, the issue in this case is whether you are required to be registered for GST.
Section 23-5 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 $75,000 ($150,000 for non-profit bodies)).
The relevant issue to consider is whether your GST turnover meets the registration turnover threshold of $75,000.
Division 188 contains provisions regarding the meaning of GST turnover. You will meet the GST turnover threshold if either:
• your 'current GST turnover' - your turnover for the current month and the previous 11 months - totals $75,000 or more ($150,000 or more for non-profit organisations)
• your 'projected GST turnover' - your total turnover for the current month and the next 11 months - is likely to be $75,000 or more ($150,000 or more for non-profit organisations).
In working out your projected GST turnover, you do not include amounts you receive for the sale of a business asset (such as the sale of a capital asset) or for any sale you made, or are likely to make, solely as a consequence of ceasing or substantially and permanently reducing the size of your business.
Given the facts of this case, we consider the sale of the Property to be the sale or transfer of a capital asset and proceeds from the sale would not be included when calculating your projected GST turnover.
If your current GST turnover reaches or is more than the GST turnover threshold but you satisfy the Commissioner that your projected GST turnover will be below the threshold, you do not have to register for GST.
Given your anticipated turnover from leasing the Property is below the registration turnover threshold, the fact that you do not receive any other business income and that the proceeds of the sale of the Property are not included in the calculation of your projected GST turnover, you are not required to register for GST.
As you are neither registered, nor required to be registered for GST, the sale of your property will not constitute a taxable supply and GST will not apply to the sale.
You were registered for GST at the time of signing the contract and have subsequently cancelled your GST registration before settlement.
Your situation is considered in Goods and Services Tax Advice GSTA TPP 070 Goods and services tax: Is a party to a contract for the sale of a commercial property who deregisters for GST before settlement required to pay GST? (GSTA TPP 070), which states:
If the commercial property is a capital asset, and the value of all other projected supplies is less than the registration turnover threshold, the supplier is not required to be registered. If the requirements of a taxable supply under section 9-5 are tested upon entry to the contract, the supply is a taxable supply. If they are tested upon settlement of the contract, the supply is not a taxable supply.
Section 9-5 does not express when the requirements for a taxable supply should be tested. The Commissioner's view is that the elements of section 9-5 should be tested at the earlier of when the supply is made, or when an event triggers attribution. The commercial property is supplied at settlement. Thus, as the supplier does not issue an invoice or receive consideration for the supply before settlement, the supplier does not need to examine the requirements of 9-5 until settlement. As the supplier is not registered or required to be registered at settlement, no taxable supply is made. Therefore no GST is payable and no tax invoice must be issued.
As outlined in GSTA TPP 070, you are not required to test the requirements of section 9-5 until settlement. As you will not be registered for GST at settlement and the proceeds from the sale of the Property are disregarded from your projected turnover, section 9-5(d) is not satisfied.
The supply of the Property is not a taxable supply and is not subject to GST.
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