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Edited version of your written advice
Authorisation Number: 1051369536364
Date of advice: 11 May 2018
Ruling
Subject: GST and requirement to register
Question
Are Entity A (receivers and managers appointed) and Entity B (receivers and managers appointed) [the Partnership] required to be registered for GST at XXYYYY.
Answer
No.
Relevant facts and circumstances
Entity A (receivers and managers appointed) and Entity B (receivers and managers appointed) is a tax law partnership [Partnership].
In YYYY, Entity A and Entity B, as tenants in common, purchased real estate (the Property).
Following an amalgamation and a subdivision, the Partnership’s real estate consisted of two lots.
The Partnership constructed a building on Lot X1. This work was completed in or around XXYYYY.
The Partnership, in conjunction with a management entity, being Entity C, commenced operating the building.
In the course of operating the building, the Partnership made various supplies.
On XXYYYY, receivers and managers were appointed to Entity A, Entity B and Entity C.
On XXYYYY, the original receivers and managers retired and were replaced by new receivers and managers.
In mid-XXYYYY, the receiver resolved to sell the Property.
On XXYYYY, the Partnership contracted to sell the Property for $XX.
On XXYYYY, the sale of the Property was completed.
The value of supplies made by the partnership in the 11 months from June YYYY to April YYYY was zero.
The Partnership did not carry on any other enterprise apart from that of operating the Property.
In XXYYYY, the total value of all supplies made by the Partnership, in the course of its enterprise was $XX. After deducting supplies that were input taxed, the value of the Partnership’s supplies in XXYYYY was reduced to $XX.
Relevant legislative provisions
A New Tax System (Goods and Services Tax ) Act 1999 Section 23-5
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
A New Tax System (Goods and Services Tax) Act 1999 Subsection 188-20
A New Tax System (Goods and Services Tax) Act 1999 Subparagraph 188-25
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 legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act
As provided in section 23-5, you are required to be registered if:
● you are carrying on an enterprise, and
● your GST turnover meets the registration turnover threshold (currently $75,000).
As the Partnership is carrying on an enterprise, it is necessary to consider the Partnership’s GST turnover and whether this meets the turnover threshold.
Section 188-10 is relevant for working out whether your GST turnover meets, or does not exceed, a turnover threshold. You have a GST turnover that meets a particular turnover threshold under subsection 188-10(1) if:
(a) your current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the turnover threshold; or
(b) your projected GST turnover is at or above the turnover threshold.
Subsection 188-15 provides that your current GST 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 of that month other than:
● supplies that are input taxed; or
● supplies that are 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.
Subsection 188-20 defines projected GST turnover and provides that your projected GST 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 that month and the next 11 months, other than:
● supplies that are input taxed; or
● supplies that are 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.
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.
In XXYYYY, the total value of all supplies made by the Partnership in the course of the enterprise was $XX. After deducting supplies that are input taxed, the value of the Partnerships supplies in XXYYYY is reduced to $XX.
The sale of the Property was completed on XXYYYY and comprised both taxable and input taxed supplies. Consequently, the Partnerships projected turnover would exceed the turnover threshold. However, subsection 188-25 provides that in working out your projected GST turnover, disregard any supply made by you by way of transfer of ownership of a capital asset of yours.
The meaning of capital assets is not defined by the GST Act. However Goods and Services Tax Ruling GSTR 2001/7 Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover considers the meaning of 'capital asset' for the purposes of section 188-25 of the GST Act. Paragraph 31 of GSTR 2001/7 states:
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'[14] 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'.[15]
Paragraph 32 of GSTR 2001/7 provides further that 'Capital assets' can include tangible assets such as your factory, shop or office, your land on which they stand, that are retained by you to produce income.
Finally, Paragraph 33 of GSTR 2001/7 outlines that capital assets are 'radically different from assets which are turned over and bought and sold in the course of trading operations' and '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) of the GST Act.'
The Partnership built the Property for the purpose of leasing and operating the latter. Therefore, we consider that the property being sold is a capital asset. Accordingly, the proceeds of the sale will not be included in your projected GST turnover.
It follows that your GST turnover will not meet the registration turnover threshold and you are not required to be registered for GST at XXYYYY.
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