Edited version of your written advice

Authorisation Number: 1051448278845

Date of advice: 30 October 2018

Ruling

Subject: GST and registration

1. Are you entitled to cancel your GST registration taking effect from XX XXX 20XX (or YY YYYY 20YY)?

2. Is your current GST turnover nil?

3. Is your sale of the property (BBB property) solely as a consequence of transfer of a capital asset of yours, or solely as a result of the cessation of your enterprise, or solely the result of a substantial and permanent reduction in the size and scale of your enterprise?

4. Is your projected GST turnover nil?

5. Are you not required to be registered any time from YY YYYY 20YY?

6. Provided you cancel your GST registration from XX XXXX 20XX (or YY YYYY 20YY) is your supply of the BBB property subject to GST?

Answers

1. Yes, in your circumstances you are entitled to cancel your GST registration taking effect from YY YYYY 20YY.

2. Yes, in your circumstances your current GST turnover is nil.

3. Yes, your sale of the BBB property would be a supply by you by way of transfer of ownership of a capital asset of yours.

4. Yes, in your circumstances your projected GST turnover is nil.

5. Yes, in your circumstances you are not required to be registered from YY YYYY 20YY.

6. No. The consequence of the above decisions in relation to your circumstances means that your supply of the BBB property is not subject to GST.

Relevant facts and circumstances

Background

● You own two properties being:

● the BBB property; and

● the SSS property.

● Each of the two properties contained residential premises when acquired. The vendors of those properties did not charge GST when they were sold the properties to you either because they were private sales or input taxed sales of existing residential premises.

● You acquired the BBB property in 20XX with a residential tenancy in place and tenant in occupation.

● You continued the existing residential tenancies and/or has since let new residential tenancies on both properties. The SSS property remains subject to residential lease. The BBB property was demolished in 20AA. The lease on the BBB property ceased in 20AA.

● You own no other real property. You do not operate any businesses in your own name.

● You had commenced an online business and obtained an ABN in your own name. Your online business ceased trading in 20XX-YY.

● You have not acquired any assets as going concerns. Further, you have not claimed input tax credits for acquisitions:

● relating to the purchase of the properties;

● for their management, repair and maintenance;

● for your general overheads; or

● in connection with the planning of the proposed childcare centre development and the demolition of the residential premises on the BBB property.

● Your activity statements have shown nil supplies and acquisitions since 20XX-YY.

● In 20YY, you lodged a development application for the construction of a child care facility on the BBB property. The application was approved in 20YY.

● Your decision to develop the property was a consequence of an approach by your sibling. Their proposal was that you would lease the childcare centre to their company.

● In 20YY, it came to your attention that approval had been given for a childcare centre across the road which had more capacity and did not require a basement. You immediately undertook research into the competing centre.

● You had engaged a demolition contractor to demolish the existing residential house on the land.

● You had wanted to complete the demolition before a certain time as you expected it might be months into the new year before you could reschedule it. Hence, although you were re-considering your development, you made a decision to continue with the already scheduled demolition which was completed soon after. Over the next few weeks you gleaned more information about the competing centre. When you discussed your findings with your sibling they immediately withdrew their proposal.

● Subsequently, you declined to proceed with the development. Your reasons were twofold being:

● Limitation of the facility approved

● Commercial viability

● As a result, you made a decision to sell the BBB property. It was listed for sale. It has been under contract. The contract indicates that the sale is “Plus GST”. If GST applied it would be added to the price.

● You intend to cancel your GST registration from a certain date being the date of abandonment of your project.

● You submit that if you do, the supply of the BBB property is not a taxable supply because you are not GST registered nor required to be registered either in respect of the residential leasing activity or the childcare centre development activity.

● The only supplies made by you in the twelve months ending YY YYYY 20YY have been input taxed supplies of residential rental of the SSS property.

● With the exception of the sale of the BBB property, the only anticipated supplies by you in the foreseeable future will be further input taxed supplies of residential rental of the SSS property.

● The proposed childcare centre was intended to be retained by you to produce rental income from a childcare operator tenant. The BBB property was not acquired for re-sale. Nor was the development application lodged and house demolished for the purposes of resale.

● You continue to carry on the enterprise of leasing.

● No further development applications have been lodged in respect of the BBB property nor construction activity undertaken on it. The appointment of the agent to sell the property occurred shortly after the decision to terminate the activity.

● At this stage, you have no plans to reinvest the net sales proceeds from the BBB property in another development. After meeting financing obligations, the net proceeds will initially be applied to meeting the losses resulting from the terminated activity.

Further information provided

● The property adjacent to the BBB property (hereafter referred to as the adjacent property) is 100% owned by your spouse.

● For a period of approximately six weeks, the BBB property was marketed for sale together with the adjacent property.

● The adjacent property has been in the rental market as domestic residence since a certain date. A tenant is currently living in this property. Your spouse has been declaring rental income in their tax returns since the 20AA/BB financial year.

● Your spouse has always treated their property as an investment. Your spouse installed tenants in it soon after they acquired it. Your spouse has had no intention to develop the property and has continued to occupy it with tenants. When you informed your spouse of your decision to terminate your enterprise and sell your property, they considered that offering the property for sale also might achieve a higher price for it than if they ever attempted to sell it in isolation. Your spouse retained the tenants throughout the joint marketing period and they remain in the property now. Having not received any offers for the property, your spouse now intends to keep it tenanted for at least two years.

● You and your spouse felt that, by marketing the properties together, a single buyer may be prepared to pay more to each of them for their individual properties. Hence, they appointed the one agent to market both properties together. Separate agency agreements were signed with separate indicative sale prices expected.

● The agent bills each owner separately for its agency services for their respective property only. It was made clear to the agent that any offers received had to be as separate prices for each property. Either owner could refuse to sell their own property if the price offered for it was insufficient but had no say in the neighbour’s decision. Any price agreed for a property would be paid entirely to the owner of it.

● The joint marketing proved unsuccessful and no prospective buyer made offers for both properties. Eventually, the agent found a buyer for your property, communicated that offer to you only and you made the independent decision to accept the offer.

● Eventually, the BBB property and adjacent property were neither sold simultaneously nor together. The adjacent property remains unsold.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 - section 9-20

A New Tax System (Goods and Services Tax) Act 1999 - subsection 25-55(1)

A New Tax System (Goods and Services Tax) Act 1999 - subsection 25-60(1)

A New Tax System (Goods and Services Tax) Act 1999 - section 25-65

Reasons for decision

Section 23-5 of the GST Act provides that you are required to be registered under this Act if you are carrying on an enterprise and your annual turnover meets the registration turnover threshold.

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) provides the Commissioner’ view on the meaning of carrying on an enterprise.

MT 2006/1 provides that assets can change their character from investment which is capital in nature to trade and therefore revenue in nature (paragraphs 258 to 260). If the activities on an objective assessment have the characteristics of trade, the person’s motive is not relevant (paragraph 254). The characteristics of trade are explained in paragraphs 243 to 261 and include the length of period of ownership and the frequency or number of similar transactions.

In this case, you are not considered to be carrying on an enterprise of property development in the circumstances set out in this private ruling.

Further Information

On an objective assessment, if the frequency of an entity’s property development and sale activities increases, such activities will need to be assessed to establish whether the entity is considered to be carrying on an enterprise of property development.

With regard to cancelling your registration, the Commissioner will cancel your registration as per your circumstances set out in this ruling where you apply for cancellation of registration in the approved form.

For further information, please refer to refer to the information under the topic of Cancelling your GST registration in the ATO’s website: www.ato.gov.au

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