Edited version of private advice

Authorisation Number: 1051828078094

Date of advice: 15 April 2021

Ruling

Subject: GST and the sale of a property

Question

Is the sale of the Property by you subject to GST?

Answer

No. The sale of the Property is not subject to GST because you are not making a taxable supply.

You will need to notify the purchaser in writing that they do not have a withholding obligation and do not need to pay a withholding amount from the contract price of the property to the Australian Taxation Office (ATO) when purchasing the property. This can be included in the sale contract or in a separate document prior to settlement.

Relevant facts and circumstances

You own a property in Australia.

You are not registered for GST.

You and your late husband purchased the Property in xxxx yyyy.

The Property acquisition was fully funded from joint funds.

Your husband passed away on x xxxxxxxx yyyy. The Property was transferred to your name after his death.

The Property is X.XX acres in size. The Property is assessed as residential property by the council.

There are x structures on the Property - being a House, a Shed and an Outside Toilet.

The above x structures are the original buildings on the Property when you purchased the property and they are still the only buildings on the Property. Since purchasing the Property in yyyy, there has only been general maintenance done on the premises. You have done any major renovation on the Property

After purchasing the Property, it was leased out as a residential property until December yyyy.

You have claimed income tax deductions in the tax returns for expenses incurred in relation to the Property up until xx xxxx yyyy.

The Property was never used to carry on any business.

You are not carrying on an enterprise of buying and selling 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 9-20

A New Tax System (Goods and Services Tax) Act 1999 section 40-35

A New Tax System (Goods and Services Tax) Act 1999 section 40-65

A New Tax System (Goods and Services Tax) Act 1999 Division 188

Summary

For the sale of the Property to be a taxable supply the sale must satisfy all the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

In your case, although the sale of the Property satisfies paragraphs 9-5(a), 9-5(b) and 9-5(c) of the GST Act because the sale is for consideration, is made in the course of your enterprise and is connected with Australia, paragraph 9-5(d) is not satisfied because you are not registered or required to be registered for GST.

The proceeds from the sale of the Property are disregarded in calculating your GST turnover as it is a sale of a capital asset. Therefore, your GST turnover will not meet the registration turnover threshold for you to be required to register.

Detailed reasoning

Note: Where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in section 195-1 of the GST Act.

GST is payable on a taxable supply.

An entity makes a taxable supply if it meets the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act (GST Act), which states:

You make a taxable supply if

(a)  you make a supply for *consideration; and

(b)  you make the supply in the course or furtherance of an *enterprise that you carry on; and

(c)   the sale is *connected with Australia; and

(d)  you are *registered 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.

(* Denotes a term defined in section 195-1 of the GST Act)

The facts indicate that you satisfy the requirements under paragraphs 9-5(a) to 9-5(c) of the GST Act as below:

•         You will supply the Property for consideration when you sell them. Therefore, the requirement of paragraph 9-5(a) of the GST Act is met.

•         In accordance with paragraph 9-20(1)(c) of the GST Act, an enterprise includes leasing out Property on a regular or continuous basis. You stated that you leased the Property and hence you are carrying on a leasing enterprise. Your sale of the Property will be a supply made in the course or furtherance of an enterprise that you carry on. Therefore, the requirement of paragraph 9-5(b) of the GST Act is satisfied.

•         Your sale of Property is connected with Australia, as the Property is located in Australia. Therefore, the requirement of paragraph 9-5(c) of the GST Act is met.

As you are not registered for GST, we need to consider if you are required to be registered for GST when you sell the Property for the purposes of paragraph 9-5(d) of the GST Act.

Are you required to be registered for GST?

An entity that carries on an enterprise is entitled to be registered for GST. However, an entity that carries on an enterprise is required to be registered for GST once their GST turnover meets the registration turnover threshold of $75,000 ($150,000 for a non-profit entity).

An entity meets the registration turnover threshold if either:

•         their current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that their projected GST turnover is below the turnover threshold; or

•         their projected GST turnover is at or above the turnover threshold.

An entity's current GST turnover and projected GST turnover includes gross enterprise income excluding (amongst other things) input taxed supplies. The rental income you have received for renting out property is excluded in working out your current GST turnover and projected GST turnover as leasing out residential premises is an input taxed supply under section 40-35 of the GST Act.

When working out your projected GST turnover, sales of capital assets are also disregarded.

Paragraphs 31 and 32 of Goods and Services Tax Ruling GSTR 2001/7 provide guidance on the meaning of capital assets. They state:

31. The GST Act does not define the term 'capital assets'. 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'

32. 'Capital assets' can include tangible assets such as your factory, shop or office, your land on which they stand, fixtures and fittings, plant, furniture, machinery and motor vehicles that are retained by you to produce income. 'Capital assets' can also include intangible assets, such as your goodwill.

Paragraphs 258 and 259 of MT 2006/1 assist in distinguishing between trading assets and investment (capital) assets. They state:

258. United Kingdom cases categorise assets as either trading assets or investment assets. Assets purchased with the intention of holding them for a reasonable period of time, to be held as income producing assets or to be held for the pleasure or enjoyment of the person, are more likely not to be purchased for trading purposes.

259. Examples of investment assets are rental properties, business plant and machinery, the family home, family cars and other private assets. The mere disposal of investment assets does not amount to trade.

You purchased the Property as investment assets and leased out as a residential property. Therefore, the Property is a capital asset of the leasing enterprise. Accordingly, you would disregard the proceeds from the sale of the Property in working out your projected GST turnover at the time you sell it.

You do not carry on any other enterprise at other locations and have no plans to do so in the 12-month period beginning from the start of the month in which you settle on the sale of the property.

Your projected GST turnover at the time of sale of the Property will be zero. Therefore, as your GST turnover will not meet the registration turnover threshold of $75,000 when you sell the Property, you will not be required to be registered for GST.

As you are not registered for GST and will not be required to be registered for GST when you sell your Property, the sale will not be a taxable supply and will not be subject to GST.

You will need to notify the purchaser of the property that the purchaser is not required to withhold GST from the purchase price. See enclosed fact sheet, GST at settlement, for more information about this requirement.

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