Edited version of private advice

Authorisation Number: 1051787819377

Date of advice: 10 December 2020

Ruling

Subject: GST and realisation of a capital asset

Question

Is the sale by the Fund of property which consists of Vacant Land (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

For the sale of the Property to be a taxable supply section 9-5 of the GST Act requires that:

(a)  you make the supply for consideration

(b)  the supply is made in the course or furtherance of an enterprise that you carry on

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

(d)  you are registered or required to be registered for GST.

In this case the Fund satisfies the requirements of paragraphs (a) to (c) in section 9-5 of the GST Act, however as the Fund is not registered or required by registered for GST it will not meet the requirements of a taxable supply.

Relevantly, section 23-5 of the GST Act provides that an entity is required to be registered for GST if it's carrying on an enterprise and its annual turnover meets the registration turnover threshold (which is $75,000 unless you are a non-profit body).

Subsection 188-10(1) of the GST Act provides you have a GST turnover that meets a particular turnover threshold if:

(a)  your current annual turnover is at or above the turnover threshold and the Commissioner is not satisfied that your projected annual turnover is below the turnover threshold; or

(b)  your projected annual turnover is at or above the turnover threshold.

In this case the current annual turnover derived by the Fund is below $75,000. Therefore, provided your projected annual turnover remains below $75,000 you will not be required to register for GST.

Subsection 188-20(1) of the GST Act states:

Your projected annual turnover at a time during a particular month is the sum of the *values of all supplies that you have made, or are likely to make, during that month and the next 11 months, other than:

(a) supplies that are *input taxed; or

(b) supplies that are not for *consideration (and are not *taxable supplies under section 72-5); or

(c) supplies that are not made in connection with an *enterprise that you *carry on.

In this case the sale of the Property will exceed $75,000. However, section 188-25 of the GST Act provides that the following types of supplies should be disregarded in calculating your projected turnover:

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

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

(i)            ceasing to carry on an enterprise; or

(ii)           substantially and permanently reducing the size or scale of an enterprise.

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) discusses the meaning of the terms 'likely to make', 'likely to be made', 'in connection with', 'transfer of ownership', 'capital asset', 'solely as a consequence of', and 'substantially and permanently' as used in Division 188.

Consistent with the discussion in GSTR 2001/7 the Commissioner accepts that, as an isolated transaction the supply of the Property (i.e. the Vacant Land) is made, or likely to be made, as a substantial and permanent reduction in size and scale of your leasing enterprise. On this basis, the supply of the Property is excluded when calculating your projected GST turnover.

According, your projected annual turnover does not exceed $75,000 and you are not required to be registered for GST under section 23-5 of the GST Act when you sell the Property.

This ruling applies for the following periods:

1 December 20XX to quarter ending 31 December 20XX

The scheme commences on:

1 December 20XX

Relevant facts and circumstances

The Fund is a self-managed superannuation fund that is registered with and ABN.

The Funds activities consist of holding and selling shares and leasing residential properties to derive rent.

The Fund is not registered for GST.

In 20XX the trustee of the Fund purchased a property (the Property) which consisted of vacant land.

The Property was purchased with the intention of holding the land, and once the self-managed superfund had the necessary financing to do so, build a residential property to derive rental income.

The construction of the property did not eventuate, and the trustee is now in the process of selling the vacant land.

The sale of the property will be for consideration in excess of $75,000.

The Property has performed well from a capital appreciation perspective but needs to be sold/realised and the monies reinvested in a different asset class to generate the desired income. That is, the trustee is of the opinion that the Property should be sold/realised and the funds from realising the assets should be re-invested in a higher yielding asset class to provide the necessary cash flow to meet the Funds pension commitments.

No input tax credits have been claimed by the Fund is respect of the purchase of the Property or any other costs.

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 section 23-15

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

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