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Edited version of your written advice
Authorisation Number: 1051467814354
Date of advice: 19 December 2018
Ruling
Subject: Goods and services tax and property
Question
Is your supply of specified property a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
No.
The scheme commences on:
December 2018
Relevant facts and circumstances
You (ie specified entity) are not registered for goods and services tax.
Specified property
Specified property was your principal residence. You lived in it from specified year to about specified year.
Specified property
Specified property was the investment property you partly owned.
It was owned by specified persons and you. Specified person is specified person parent. Specified person is specified person step parent.
Specified person and specified person could not afford to buy the place by themselves. Your intention in buying this place was to give specified persons a place to live. Specified persons resided in the property. They paid you specified number per cent of the market value rental of the place. They rented the property for about specified number years.
Specified person then retired. They then could no longer afford the rent. In addition, specified person needed funds to pay their credit card debt. Therefore, the property could not be rented out by the specified number owners after specified person retirement. You could not afford to buy specified persons specified number per cent share of the property. Therefore, you sold the place in specified date.
Specified persons lived elsewhere from thereon.
Specified property
Specified property is your current principal residence. You have lived in this place since specified date.
Specified properties
You purchased vacant land approximately specified number years ago. You bought it with a view to constructing specified number residential home properties to be made available for rent. You engaged the services of a builder to construct the specified number houses. The land was subdivided after the specified number houses were built. They each had their own frontage. The houses were rented out shortly after completion approximately specified number years ago.
The rental income was deposited into your joint bank account.
At the time of completion the local area had an under-supply of housing with minimal properties available for rent. It was your intention at the time to hold each of the properties on a long term basis. Since this time the local council has experienced a record number of housing applications and supply currently exceeds demand.
This became evident earlier this year, when it took specified number weeks of marketing to secure a new tenant after your original tenant gave notice. This placed a burden on your cash flow. It required a redraw of your personal mortgage to meet the costs at the time.
You are considering selling specified number of the properties. The address of the property, you intend selling, is specified property (Property).
The approximate build cost for the Property was specified number. The estimated sale price is approximately specified number.
The address of the other property, you are keeping, is specified property.
You have not been involved in any other real estate transactions apart from what is detailed above.
You are not involved in any other enterprises.
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
A New Tax System (Goods and Services Tax) Act 1999 subsection 40-35(1)
A New Tax System (Goods and Services Tax) Act 1999 subsection 188-10(1)
A New Tax System (Goods and Services Tax) Act 1999 section 188-25
Reasons for decision
● All legislative references are to the GST Act unless otherwise specified.
● All terms marked by an *asterisk are defined terms in the GST Act.
Section 9-5 provides that 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.
For the supply of your Property to be a taxable supply, all of the requirements in section 9-5 must be satisfied. One of the requirements for a taxable supply is that you are registered or required to be registered for GST
GST registration
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, which is currently $75,000 for entities other than non-profit entities.
Both of these criteria need to be met for you to be required to be registered for GST.
Relevantly we will consider whether your GST turnover meets the registration turnover threshold. You will not be required to be registered if you do not meet the registration turnover threshold.
Registration turnover threshold
Subsection 188-10(1) provides that you have a GST turnover that meets the registration turnover threshold if:
● your current GST turnover is at or above the registration turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the registration turnover threshold, or
● your projected GST turnover is at or above the registration turnover threshold.
It is necessary to determine whether your projected GST turnover meets the threshold. You are required to be registered for GST if your projected GST turnover is at or above $75,000.
Your projected GST turnover is the sum of the values of all supplies made in a particular month plus the next 11 months.
Relevantly supplies that are input taxed are disregarded when working out your projected GST turnover.
Input taxed supply of house by way of lease
Subsection 40-35(1) provides that a supply of premises that is by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is input taxed if:
(a) the supply is of *residential premises (other than a supply of *commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises); or
(b) the supply is of *commercial accommodation and Division 87 (which is about long-term accommodation in commercial premises) would apply to the supply but for a choice made by the supplier under section 87-25.
We consider that the supply of your Property by way of lease is input taxed under subsection 40-35(1). Therefore, any consideration for the lease of the house is disregarded when working out your projected GST turnover.
Supply of house by way of sale
In addition, we need to consider whether the sale of the Property is included in the projected GST turnover.
Section 188-25 provides that when calculating your projected GST turnover, you do not include any supplies made, or likely to be made by you:
● by way of transfer of ownership of a capital asset, or
● solely as a consequence of ceasing an enterprise or substantially and permanently reducing the size or scale of your enterprise.
Capital asset
The meaning of 'capital asset' is discussed in paragraphs 31 to 36 of 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.
The GST Act does not define the term “capital asset”. However, GSTR 2001/7 explains that generally, the term capital assets refers to those assets that make up the profit yielding subject of an enterprise. They are often referred to as structural assets. They may be described as the business entity, structure or organisation set up or established for the earning of profits.
Capital assets are to be distinguished from revenue assets. A revenue asset is an asset whose realisation is inherent in, or incidental to, the carrying on of a business. If the means by which you derive income is through the disposal of an asset, the asset will be of a revenue nature rather than a capital asset even if such a disposal is an occasional or one-off transaction. Therefore, the character of an asset must be determined at the time of expected supply.
In this case, you held the Property in order to derive lease income from letting the Property. You did not intend to derive income from the disposal of the Property. The Property is therefore a capital asset used in that leasing enterprise. It follows then, that the disposal of the Property will be excluded from the calculation of your projected GST turnover.
It follows that your projected GST turnover is below $75,000. Your GST turnover does not meet the $75,000 registration turnover threshold.
Therefore, you are not required to be registered under section 23-5.
Conclusion
As you do not meet all the requirements of section 9-5 your supply of the Property will not be a taxable supply.
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