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Edited version of private advice

Authorisation Number: 1051733958121

Date of advice: 20 August 2020

Ruling

Subject: GST and sale of real property

Question

When you, sell your property located at XYZ and identified as (the Property) are you making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) and is GST payable on the sale?

Answer

No, GST is not be payable on the sale of the Property as you are not making a taxable supply under section 9-5 of the GST Act. This is provided:

This ruling applies for the following period:

Year ended DDMMYYYY

The scheme commences on:

DDMMYYYY

Relevant facts and circumstances

You are an entity trading as X (the Entity). A list of member(s) are provided.

In this ruling, unless its application is expressly limited, the expression 'you' applies to the Entity and is used interchangeably.

The Entity was registered for GST from DDMMYYY to DDMMYYYY. In our letter dated DDMMYYYY, we notified you that your GST registration was cancelled effective as of DDMMYYYY because you advised us:

·   your GST turnover was below the required threshold

·   you no longer wanted to be registered, and

·   you were not required to be registered.

The Entity owns a property located at XYZ (the Property) and carries on a specified business from the Property. Information on a copy of the title search document you provided includes:

The following infrastructure is located on the Property:

·   a list of the infrastructure was provided.

The ill health of an Entity's member (the Member) over the past few of years has resulted in the specified items of the business being put into a maintenance mode. Your original plan was to keep everything in a ready state so that you could start trading again once the Member's health improved. However, the Member's health has not improved and you have decided to sell the Property.

The Property is currently on the market for sale, and the advertisement was provided.

You confirmed the information in the advertisement is correct with the exception that the rental amount is currently $ per week in total for the specified number of rental premises. One of the premises is your residence.

A list of business items you will be selling the Property was provided.

You consider that everything required to continue the business is in place. You are just not physically able to continue full operation of the business. You believe it is a specified business and that even though you have not been able to trade for reasons beyond your control, the business has been in continual operation and is to be sold as a going concern.

You advised us on DDMMYYY that the business is not operating, and you have no other source of income.

A list of specified business items and expenses was provided.

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 paragraph 9-5(d)

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 section 23-5

A New Tax System (Goods and Services Tax) Act 1999 paragraph 23-5(a)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 23-5(b)

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-10(1)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 188-10(1)(a)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 188-10(1)(b)

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-10(2)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 188-10(2)(a)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 188-10(2)(b)

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

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

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

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 reference materials published by the Australian Taxation Office (ATO) referred to in this ruling are available on the ATO website ato.gov.au

GST is payable on any taxable supply that an entity makes.

Under section 9-5, an entity makes a taxable supply if all the following requirements are satisfied:

(a)  The supply is made for consideration,

(b)  The supply is made in the course or furtherance of an enterprise that the entity carries on,

(c)   The supply is connected with the indirect tax zone, and

(d)  The entity is registered for GST or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Pursuant to paragraph 9-5(d), the Entity is currently not registered for GST. Accordingly, it is relevant to determine if the Entity is required to be registered for GST in relation to the sale of the Property.

Under section 23-5, an entity is required to be registered for GST if:

(a)  the entity is carrying on an enterprise, and

(b)  the entity's GST turnover meets the registration turnover threshold.

The GST registration turnover threshold for an entity is $75,000 unless the entity is a non-profit body.

The GST registration turnover threshold applicable to you is $75,000.

For GST purposes, the definition of the term carrying on an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

The Entity is carrying on the enterprise(s).

In this case, due to the ill health of the Member, the specified business items have been put into a maintenance mode with the plan to keep everything in a ready state so you can restart trading once the Member's health improves. As the Member's health has not improved significantly, the Entity has decided to sell the Property. You have also advised that the business is not currently operating.

Based on the above facts, the Entity meets the definition of carrying on an enterprise in relation to the specified enterprise(s). Paragraph 23-5(a) is therefore satisfied for GST registration purposes. The Entity will be required to be registered for GST if the requirement specified in paragraph 23-5(b) is also satisfied. That is, if the Entity's GST turnover meets the GST registration turnover threshold of $75,000.

Subsection 188-10(1) provides that an entity has a GST turnover that meets the turnover threshold if:

(a)  the entity's current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that the entity's projected GST turnover is below the turnover threshold, or

(b)  the entity's projected GST turnover is at or above the turnover threshold.

Subsection 188-10(2) provides that an entity has a GST turnover that does not exceed the turnover threshold if:

(a)  the entity's current GST turnover is at or below the turnover threshold, and the Commissioner is not satisfied that the entity's projected GST turnover is above the turnover threshold, or

(b)  the entity's projected GST turnover is at or below the turnover threshold.

'Current GST turnover' at any time during a particular month is the sum of the values of all the supplies that an entity makes, or is likely to make, during the current month and the preceding 11 months.

'Projected GST turnover' at a time during a particular month is the sum of the values of all the supplies that an entity makes, or is likely to make, during that month and the next 11 months.

Certain supplies are excluded from the calculation of current GST turnover and projected GST turnover, including:

In cancelling your GST registration effective from DDMMYYY, you advised us that your GST turnover was below the required threshold, in which case it is relevant to consider paragraph 188-10(1)(b) to determine if the Entity's projected GST turnover is at or above the GST registration turnover threshold.

Relevant guidelines in determining the projected GST turnover of an entity are available from the public ruling: 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 (GSTR 2001/7). GSTR 2001/7 includes the following explanations:

Supplies to be disregarded under section 188-25

29. 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:

·         any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours; and

·         any supply made, or likely to be made, by you solely as a consequence of:

- ceasing to carry on an enterprise; or

- substantially and permanently reducing the size or scale of an enterprise.

30. Your projected GST turnover does not include supplies that fall within the description in either paragraph 188-25(a) or paragraph 188-25(b) listed above. Your supply does not have to satisfy the descriptions in both paragraph (a) and paragraph (b). When you make a supply that is capable of satisfying the description in both paragraphs, the supply is excluded only once. (See example 3 at paragraph 53 of this Ruling.)

Note: In paragraph 30 above, the reference to paragraphs 188-25(a) and 188-25(b) is a reference to the first and second dot point in paragraph 29 respectively.

The GST Act does not define the term 'capital asset'. However, the meaning of capital asset is discussed in paragraphs 31 to 36 of GSTR 2001/7, which explain 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 and 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.

Based on the facts of this case, we consider that you have held the Property in order to derive the turnover of the enterprise. The Property is therefore a capital asset in nature. You have also ceased operating the specified business. Accordingly, we consider that section 188-25 applies to the facts of your situation and the proceeds from the sale of the Property will be disregarded from the calculation of projected GST turnover.

As the income received from the lease of residential premises would be input taxed and the sale of your Property is the sale of a capital asset, your projected GST turnover is below $75,000 and does not meet the GST registration turnover threshold. You are therefore not required to be registered for GST under section 23-5.

As the GST registration requirement for a taxable supply is not satisfied, you will not make a taxable supply of the Property located at <the address of the Property> identified as <the Property's identifier> and GST will not be payable on the sale. This is provided:

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