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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your written advice

Authorisation Number: 1051481839342

Date of advice: 08 February 2019

Ruling

Subject: GST and property

Question

Is your supply of the Property a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

This ruling applies for the following periods:

Quarters ending 31 March 2019 to 30 June 2020

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You, Trust A registered for GST from ddmmyyyy to ddmmyyyy.

Lot A and Lot B Australia

In yyyy you acquired vacant land located in Australia (Lot A).

In YYYY you acquired an adjoining block of vacant land located in Australia (Lot B).

Lot A and B were on sloping land and could not be subdivided. You had intended to build a new holiday home to be leased to associates. You incurred preliminary home design expenses to build one house over the two properties. However due to the cost and objections from residents you were not able to proceed with the project.

In yyyy you sold both properties as vacant land.

You did not claim any input tax credits in respect to acquisitions nor did you report the sales in your BAS.

Lot C

In yyyy you bought another vacant lot located in Australia (Lot C).

You had intended to build a new holiday home to be leased to associates. You had issues with the neighbours and decided to sell the property.

You sold Lot C in mmyyyy.

You did not claim any input tax credits in respect to acquisitions nor did you report the sale in your BAS.

Lot D

In yyyy you acquired another property with the sole intent of developing the property into a two-unit site for the purpose of sale. You claimed input tax credits on the development costs and reported the sales of the units under the margin scheme.

You cancelled your GST registration on ddmmyyyy after the units were sold.

Lot E

You currently own a vacant block of land located in Australia (Lot E) which was acquired in yyyy. The Land was one acre in size and contained an old 19X0s fibro cement holiday shack. You purchased the property with the intention of renting the property for the short to medium term. You then intended to build a new holiday home to be leased to associates. An architect was engaged to design the new holiday home.

The tenants of the existing shack vacated the premises and you were not successful in finding a new tenant.

Therefore, you demolished the existing dwelling in order to build the new holiday home however you could not obtain the finance required to build the new holiday home. As a result, you are now contemplating selling the vacant land.

Other matters

Company A is the trustee of Trust A. Mr and Ms O, are directors of Company A.

Mr O has not entered into any real estate transactions in his own name but has interests in the following entities:

Ms O owns the family home. They have not entered into any other real estate transactions under their own name however as set out above is in involved in real estate transactions through their directorship of the trustee of Trust A.

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 188-10(1)

A New Tax System (Goods and Services Tax) Act 1999 section 188-25

Reasons for decision

Section 9-5 provides that you make a taxable supply if:

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. In your case you expect to make the supply for consideration and the supply will be connected with Australia. However we must consider whether the supply is in the course of an enterprise that you carry on and whether you are required to be registered for GST.

Prior to this activity you had bought and sold a number of properties which you had initially intended to also construct residential premise for lease on the lots but never achieved your aims. In the 3 previous transactions you had sold the vacant lots while registered for GST. These were taxable supplies as they met the conditions of section 9-5.

When you acquired Lot E you were registered for GST. You leased the premises to residential tenants.

You had considered, as with the previous transactions on lots A, B and C that you would eventually demolish the existing premises and build residential premises for lease as holiday accommodation. When the existing tenant vacated the premises and you could not get a replacement tenant you decided to proceed with the construction of a ‘holiday’ home to lease for short term guests. You engaged an architect to design the home and demolished the premises. You cancelled your GST registration.

GST registration

Section 23-5 provides that you are required to be registered for GST if:

Both of these criteria need to be met for you to be required to be registered for GST.

Up until X months ago you were involved in a leasing enterprise and then you decided to build new premises and continue with the leasing enterprise albeit you intended for there to be supplies of short term accommodation. This new enterprise was embarked upon but you never actually completed the new residential premises nor entered into any leasing transactions.

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:

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.

Supply of vacant land

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:

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 for the short to medium term. You did not intend to derive income from the disposal of the Property. You also intended to eventually build a new holiday home to be utilized by your beneficiaries. You could not obtain the finance required to build the new holiday home. As a result, you are now contemplating selling and merely realizing the Property in its current state (i.e. vacant land).

The Property was acquired as a capital asset used in a leasing enterprise for the long term leasing to the tenant. Whilst you had taken some preliminary steps to build a new holiday for lease, we are of the view the asset has not at this stage changed its character to a revenue asset.

It follows that the disposal of the Lot E will be excluded from the calculation of your projected GST turnover.

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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