Edited version of private advice

Authorisation Number: 1051794307135

Date of advice: 12 January 2021

Ruling

Subject: GST implications in relation to the supply of a commercial property when an entity is not registered or required to be registered

Question 1

Will the supply of the property, be a supply by way of the transfer of ownership of a capital asset or a supply made solely as a consequence of substantially and permanently reducing the size and scale of an enterprise for the purposes of section 188-25 of the GST Act and therefore not included in the calculation of GST turnover?

Answer

Yes

Question 2

Would the entity be required to be registered for GST under section 23-5 of the GST Act when the property is ultimately supplied (ie.at the time of settlement)?

Answer:

No

Question 3

Is the entity entitled to cancel its GST registration?

Answer:

Yes

Question 4

Will the supply of the property by the entity under a contract of sale be a taxable supply under section 9-5 of the GST Act?

Answer:

No

The scheme commences on:

The date of issue

Relevant facts and circumstances

The entity purchased a commercial property in 1998.

The property is a commercial office block with a variety of tenants.

The entity is registered for GST.

The entity applied and was granted development approval.

The entity is proposing to sell the property with vacant possession.

The rental income for a financial year exceeds the turnover threshold, however, is decreasing over time.

Based on the initial market enquiries, to realise the full capital value of the property, the property needs to sell with vacant possession.

The entity intends to cease its enterprise as a commercial landlord and stop actively advertising for new tenants.

The entity intends to cancel its GST registration.

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 9-20

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 section 25-55

A New Tax System (Goods and Services) Tax Act 1999 section 188-20

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

Reasons for decision

Question 1

Will the supply of the property, be a supply by way of the transfer of ownership of a capital asset or a supply made solely as a consequence of substantially and permanently reducing the size and scale of an enterprise for the purposes of section 188-25 of the GST Act and therefore not included in the calculation of GST turnover?

Section 188-25 of the GST Act provides that projected turnover is calculated at a time during a particular month as the sum of values of all supplies that you have made, or are likely to make, during the month and the next 11 months, other than supplies that are input taxed, supplies that are not for consideration (and are not taxable supplies under 72-5) or supplies that are not made in connection with an enterprise that you carry on.

Section 188-25 of the GST Act provides details as to what is excluded from the GST turnover calculation.

Subsections 188-25 (a) and (b) states that in working out your projected turnover, disregard

(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:

a.    Ceasing to carry on an enterprise; or

b.    Substantially and permanently reducing the size or scale of an enterprise.

Based on the information provided the property is a capital asset and the proceeds of the sale of the property would be excluded from the calculation in relation to the projected turnover.

Question 2

Would the entity be required to be registered for GST under section 23-5 of the GST Act when the property is ultimately supplied (ie.at the time of settlement)?

Subsections 23-5 (a) and (b) states that you are required to be registered under the GST Act if:

(a)  You are carrying on an enterprise; and

(b)  Your GST turnover meets the registration turnover threshold.

The registration turnover threshold (unless you are a non-profit body) is currently $75,000.

Should the entity's turnover or projected turnover, fall below the registration turnover threshold, then they would not be required to be registered for GST. The sale of a capital asset (ie. the property) does not affect the turnover threshold calculation and the requirement to be registered for GST.

It was stated that the entity is carrying on a leasing enterprise and that the intension is to cease its enterprise as a commercial landlord and stop actively advertising for new tenants.

Based on the facts of this case, should the sale and subsequent settlement date of the property be after the date that the entity is no longer required to be registered, there would be no GST consequences to consider in relation to the sale of the capital asset (the property).

Question 3

Is the entity entitled to cancel its GST registration?

Section 25-55 of the GST Act states that the Commissioner must cancel your registration if you have applied for cancellation of registration in the approved form and at the time you applied for cancellation of registration, you had been registered for at least 12 months, and the Commissioner is satisfied that you are not required to be registered.

The entity was registered for GST and therefore meets the requirement under paragraph 25-55(1)(b) of the GST Act.

Should the entity's turnover fall below the turnover and projected turnover requirements under sections 23-5 and 188-25 of the GST Act, then the entity would be entitled to cancel its GST registration.

Question 4

Will the supply of the property by the entity under a contract of sale be a taxable supply under section 9-5 of the GST Act?

Section 9-5 of the GST Act states 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.

The entity stated that it is ceasing its enterprise of commercial leasing and is intending to sell the property with vacant possession. The entity has the intention of cancelling its GST registration once its turnover or projected turnover goes below the required turnover threshold (currently $75,000).

Based on the facts provided in relation to this case the sale of the property would not be a taxable supply under section 9-5 of the GST Act as the entity will not be registered or required to be registered.

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