Edited version of private advice

Authorisation Number: 1051735410479

Date of advice: 06 August 2020

Ruling

Subject: GST and the sale of real property

Question

Is the sale of the land by the owners corporation a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999?

Answer

No, as the owners corporation is neither registered nor required to be registered for GST, the sale is not a taxable supply.

This ruling applies for the following period:

This ruling applies to the tax period in which the sale of the land occurs.

Relevant facts and circumstances

The property is existing residential premises comprising:

·         a number of strata titled residential premises; and

·         several other strata titled lots, being parking lots and storage units that are directly associated with some of the strata titled residential premises; and

·         common property such as hallways, roofs, driveways

The common property is owned and managed by two owners corporations which are proportionately owned by the owners of the strata titled residential premises.

The owners corporation is the owner of a specific part of the land. That is, the owners corporation is the legal owner of common property although it is not listed as an asset of the owners corporation on its balance sheet. No part of the land is capable of having a person reside on it.

The owners corporation intends to sell part of the land to one of the strata titled residential premises owners for an amount of money.

The owners corporation is a not-for-profit body and had income of less than $75,000 for the year ended 30 June 2019. For a period of approximately 11 months in the following year, the income was less than $75,000.

None of the owners of the strata titled residential premises (in such capacities), and neither of the owners corporations, are or have ever been registered for GST purposes. Without the sale of the land, the owners corporation is not required to be registered for GST.

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 188-25

Reasons for decision

The sale of land by the owners corporation will be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) if:

·         the sale is for consideration (payment); and

·         the sale is made in the course or furtherance of an enterprise that the OC carries on; and

·         the sale is connected with the indirect tax zone; and

·         the owners corporation is registered, or required to be registered for GST; and

·         the sale is neither GST-free, nor input taxed.

The sale of the land will be for consideration (ie payment of money) and is connected with the indirect tax zone (as it is located in Australia). Although the land is connected with residential premises (being part of the common property of the strata titled properties), by itself, the land is not capable of being residential premises and, as such, cannot be an input taxed supply under section 40-65 of the GST Act. Furthermore, there are no provisions within the GST Act which would provide that the sale would be GST-free. Therefore, the sale of the land will be a taxable supply if it is sold in the course or furtherance of an enterprise carried on by the owners corporation and the owners corporation is required to be registered for GST.

The Miscellaneous Taxation Ruling, 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) explains that a body corporate carries on an enterprise of providing services to and for its members. At paragraph 232, MT 2006/1 refers to the AAT case Body Corporate, Villa Edgewater Cts 23092 v. FC of T 2004 ATC 2056; 55 ATR 1162 (Villa Edgewater case):

232. In the Villa Edgewater case the entity was a body corporate registered under a State Act. Its members were the owners of lots in an apartment complex. The Tribunal found that the body corporate provided services for its members and the members made contributions connected with the services. It prepared a budget and spent money. The body corporate had the capacity to enter into contracts with employees and contractors in its own right. It had a managing committee and rules of association and conducted meetings of members to approve certain activities. It had statutory responsibilities with respect to the common areas that it must discharge.

As the enterprise being carried on by the owners corporation involves holding, maintaining and managing the common property, it follows that the sale of that property is part of the activities it has been authorised to perform. Consequently, the sale of the land will be in the course of the owners corporation's enterprise.

Generally, a not-for-profit entity is required to be registered for GST if:

·         its current GST turnover is at or above $150,000, and the Commissioner is not satisfied that its projected GST turnover is below that amount; or

·         its projected GST turnover is at or above $150,000.

The turnover of an entity is determined by adding the value of supplies made (excluding input taxed supplies and supplies made for no consideration. The current turnover (ie the value of the current month's supplies plus the previous 11 months) of the owners corporation is less than $150,000. The projected turnover (ie the value of the current month's supplies plus the value of supplies likely to be made in the following 11 months) of the owners corporation will be more than $150,000 if the sale of the land is included in the calculation. However, paragraph 188-25(a) of the GST Act excludes 'any supply made, or likely to be made, ...by way of transfer of ownership of a capital asset ...' when working out the projected GST turnover.

The Goods and Services Tax Ruling, Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover (GSTR 2001/7) provides guidance on the meaning of the terms 'transfer of ownership' and 'capital asset' in the context of section 188-25 of the GST Act. Paragraph 37 of GSTR 2001/7 explains that the phrase 'transfer of ownership' retains its ordinary meaning of 'a transfer of the whole of your beneficial interest in the asset with or without legal title'. From paragraph 31, GSTR 2001/7 explains that capital assets are often referred to as 'structural assets' and can include tangible assets such as a factory, shop or office, land on which they stand, fixtures and fittings, plant, furniture, machinery, motor vehicles and also intangible assets, such as goodwill. Paragraph 33 of GSTR 2001/7 quotes Latham CJ in Sun Newspaper Ltd v. FC of T (1938) 61 CLR 337 at 356 in stating that capital assets 'are radically different from assets which are turned over and bought and sold in the course of trading operations'.

Although the land being sold by the owners corporation is not used in its enterprise to produce income or profit, it is not a trading asset of the owners corporation. Paragraph 35 of GSTR 2001/7 states:

35. 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...

The land has been held by the owners corporation on behalf of the owners of the strata titled premises. The land is not held by the owners corporation to derive income through disposal or trade and, as such, has the nature of a capital asset. As the sale of the land by the owners corporation will be a supply made, or likely to be made, by way of transfer of ownership of a capital asset, the value of the sale is excluded from the calculation of the owners corporation's projected GST turnover.

As the projected GST turnover of the owners corporation is less than $150,000, the sale of the land does not cause it to be required to be registered for GST.

As the owners corporation is neither registered, nor required to be registered for GST, the sale of the land is not a taxable supply under section 9-5 of the GST Act.

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