Edited version of private advice

Authorisation Number: 1051824971114

Date of advice: 15 April 2021

Ruling

Subject: Requirement to be registered for GST

Question

Are the sales of the properties taxable supplies under section 9-5 of the A New Tax System (Goods and Services Tax Act) 1999 (GST Act)?

Answer

No, the sale of the properties are not taxable supplies under section 9-5 of the GST Act.

The scheme commences on:

The date of issue of this ruling

Relevant facts and circumstances

•         You purchased a property on which stood an existing residential property.

•         Over a number of years, you renovated the existing residence and added two more dwellings to the block.

•         Your intention was to hold as an investment and rent out all three properties.

•         Since the completion of construction, all three properties have been rented and they have not previously been marketed for sale until now.

•         You do not have an Australian Business Number (ABN), nor are you registered for GST.

•         You have not claimed any input tax credits in relation to the renovations and construction of the properties.

•         You now intend to sell all three properties.

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

Reasons for decision

The sale of new residential premises is a taxable supply if the requirements in section 9-5 of the GST Act are met. Under section 9-5 of the GST Act, an entity makes a 'taxable supply' where the supply:

1.    is made for consideration; and

2.    is made in the furtherance of an enterprise that you carry on; and

3.    is connected with the indirect tax zone; and

4.    is made by a supplier who is registered, or required to be registered, for GST.

If the new residential premises were to be sold, the supplies would consist of properties which are located in Australia and therefore connected with the indirect tax zone and the supplies would be made for consideration. Therefore, the sale of the property would satisfy two elements outlined above (1 and 3). Accordingly, we need to determine whether the other two elements (2 and 4) would also be satisfied. If this were the case, the supplies of the properties would satisfy all requirements of section 9-5 of the GST Act and would be taxable supplies.

Are you carrying on an enterprise?

The term enterprise is defined for GST purposes in section 9-20 of the GST Act and includes, among other things, an activity or series of activities done:

•         on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property (paragraph 9-20(1)(c) of the GST Act).

Goods and Services Tax Determination GSTD 2000/9 Goods and services tax: if you let out residential premises do you need to get an ABN for PAYG purposes or register for GST?explains at paragraph 7 that the letting of a property is an activity in the nature of a lease, licence or other grant of an interest in property. If it is done on a regular and continuous basis, the activity will meet the definition of enterprise.

In your circumstances, you have been leasing two residential properties since the construction was completed in 2017. As a result, you are carrying on an enterprise for GST purposes as per paragraph 9-20(1)(c) of the GST Act.

GST registration

Section 23-5 of the GST Act provides that you are required to be registered for GST if you carry on an enterprise and your GST turnover meets the registration turnover threshold (currently $75,000). In relation to your leasing enterprise, you were not required to be registered for GST as the leasing of residential properties is input taxed and input taxed supplies do not count toward either the current or projected GST turnover under Division 188 of the GST Act. Therefore, as the only supplies you make are input taxed supplies your registration turnover threshold would be $0.

Conclusion

The proposed sale of the properties will not be taxable supplies under section 9-5 of the GST Act as you are not registered or required to be registered for GST. Therefore, you will not be liable for GST on the sale in accordance with section 9-40 of the GST Act.

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