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Edited version of your written advice
Authorisation Number: 1051296263292
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You cannot rely on this edited version in your tax affairs. You can only rely on the advice that we have given to you or to someone acting on your behalf.
The advice in the Register has been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict ATO policy or decisions.
Date of advice: 24 October 2017
Ruling
Subject: GST and sale of an interest in a property
Question 1
Should GST have been charged on the supply of an interest in property?
Answer
In this case as the first entity was registered for GST it made a taxable supply of its interest in the property at the time of supply and the consideration the first entity received contains an amount for GST.
However, as the second entity was neither registered nor required to be registered for GST it did not make a taxable supply of its interest in the property. Consequently GST did not apply to the supply of the second entity’s interest.
Question 2
Is GST payable on the sale price of half of the property owned by the first entity? Should this GST be declared in the BAS at Label 1” Owing to the ATO”?
Answer
Yes. See answer to question 1.
Relevant facts and circumstances
The first and second entity purchased a property as tenants in common.
The entities had 50% interest in the property.
The first entity was registered for GST.
The second entity was not registered nor was it required to be registered for GST.
Relevant legislative provisions
A New Tax System (Goods and Service Tax) Act 1999; sections 9-5; 9-20 & 9-40
Reasons for decision
1. Under section 9-40 of the A New Tax System (Goods and Service Tax) Act 1999 (GST Act) an entity is liable for GST on any taxable supply that it makes.
Section 9-5 of the GST Act provides that an entity makes a taxable supply if it makes the supply for consideration, the supply is made in the course or furtherance of an enterprise that it carries on, the supply is connected with the indirect tax zone (Australia) and the entity is 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.
For the supply of the interest in the property to be a taxable supply, all of the requirements of section 9-5 of the GST Act must be satisfied.
Under a tenancy in common, the tenants hold undivided shares, possessing the property in common and without the exclusive possession of any part of it.
In examining the facts presented, there is an equal share held in the vacant land by the two entities as tenants in common. Therefore, the supply that is being made, as a tenant in common, is the supply of an interest in the property, rather than the actual supply of the property itself. As a consequence, the supply is being made by the entities in their own capacity.
As stated in the facts, the first was registered for GST when it made the supply of an interest in property for consideration. This supply is connected with Australia. To fall within the provisions of a taxable supply, such supply must be made in the course of carrying on an enterprise.
The term ‘enterprise’ is defined in section 9-20 of the GST Act to include an activity, or series of activities, done in the form of a business, or in the form of an adventure or concern in the nature of trade, or on a regular or continuous basis.
From the information provided, the interest in the property was acquired in the first entity’s name as well as the second entity’s name as tenants in common. It is therefore recognised as part of the first entity’s asset and any subsequent supply of the interest is therefore made in the course or furtherance of the first entity’s enterprise.
According to section 195-1 of the GST Act carrying on an enterprise includes doing anything in the course or furtherance of the commencement or termination of the enterprise.
Therefore, in this case as the first entity was registered for GST at the time of the interest in the property the trust made a taxable supply of its interest in the property and the consideration the first entity received contains an amount for GST.
2. Yes. See answer to question 1.
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