Edited version of private advice

Authorisation Number: 1052019873731

Date of advice: 17 August 2022

Ruling

Subject: GST - property

Question 1

Are you required to be registered for GST pursuant to section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Question 2

Are you liable for GST pursuant to section 9-40 of the GST Act on the supply of the vacant land located at <address>?

Answer

Yes.

Relevant facts and circumstances

As at <date> the land situated at <address> (the Property) was owned by <number> individuals as tenants in common:

On <date> a court order was made creating a trust (you) and vesting the Property in your trustees for the purposes of sale (the Court Order). You provided a copy of the court order.

You, through your trustees, subsequently entered into a contract with the <entity name> (purchaser) for the sale of the Property for $<number> on <date>.

You engaged valuers, solicitors and conveyancers paying the costs of acquisitions from these third parties and other costs relating to the sale of the Property.

Settlement of the sale of the Property took place on <date>.

You provided a schedule of disbursements of the property sale proceeds.

On <date> you registered for an ABN and GST and backdated the commencement date of these registrations to <date>.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 section 9-20

A New Tax System (Goods and Services Tax) Act 1999 section 23-5

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-10(1)

A New Tax System (Goods and Services Tax) Act 1999 section 188-15

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

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

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

A New Tax System (Goods and Services Tax) Act 1999 subsection 195-1

Reasons for decision

Question 1

Section 23-5 provides that you are required to be registered if:

a)    you are carrying on an enterprise; and

b)    your GST turnover meets the registration turnover threshold (currently $75,000 or $150,000 for non-profit bodies).

As you are not a non-profit body, the registration turnover threshold that applies to you is $75,000.

Carrying on an enterprise

The term 'enterprise' is defined in subsection 9-20(1) as follows:

An enterprise is an activity, or series of activities, done:

(a) in the form of a *business; or

(b) in the form of an adventure or concern in the nature of trade; or

...

The phrase 'carrying on an enterprise' includes doing anything in the course of the commencement or termination of the enterprise (section 195-1).

The question of whether a party, or parties, appointed as Statutory Trustees for the sale of property was considered by White J in Toyama Pty Ltd v Landmark Building Developments Pty Ltd [2006] NSWSC 83 (Toyama case). In the Toyama case the appointment of the Statutory Trustee was made pursuant to section 66G of the Conveyancing Act 1919 (NSW) (Conveyancing Act) as in this case.

In the Toyama case, White J at [68] noted that the 'enterprise which the trustees carried on was the series of activities required to be undertaken pursuant to their appointment as trustees for sale. The sale of the property, being the very thing they were appointed to do, was in furtherance of that enterprise'.

White J added at [69] that the activity, or series of activities, which the trustees carried on, was done in the form of a business.

White J found at [72] that 'When the enterprise carried on by the trustees is regarded as a whole, it can be seen that it involves a series of acts done by the trustees. These included the engaging of consultants, the marketing of the property, the obtaining of judicial advice and the sale of the property'.

In this case, you were created by a court to allow the trustees to effect the sale of the Property and distribute the net proceeds of sale to the plaintiffs and defendants in accordance with the Court Order. In the course of your duties you engaged valuers, solicitors and conveyancers. You paid the costs of acquisitions from these third parties and other costs relating to the Property. These activities have a commercial character.

We consider the comments of White J in the Toyama case have similar application in your case. As such, we consider you are carrying on an enterprise for GST purposes for the sale of the Property.

The next issue to consider is whether your GST turnover meets the registration turnover threshold.

GST turnover

Subsection 188-10(1), when read together with paragraph 188-10(3)(b), provides that you have a GST turnover that meets the registration turnover threshold if:

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

b)    your projected GST turnover is at or above the registration turnover threshold.

As mentioned above, the registration turnover threshold that applies to you is $75,000.

'Current GST turnover' is defined in subsection 188-15(1) as the sum of the values of all of your supplies made in a particular month and the preceding 11 months other than:

a)    supplies that are input taxed

b)    supplies that are not for consideration

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

'Projected GST turnover' is defined in subsection 188-20(1) as the sum of the values of all of your supplies made in a particular month and the following 11 months other than:

a)    supplies that are input taxed

b)    supplies that are not for consideration

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

Section 188-25 requires you to disregard the following when calculating your projected GST 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.

This issue is considered in 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.

The ATO view of the meaning of 'capital assets' is discussed in paragraphs 31 to 36 of GSTR 2001/7. Generally, the term 'capital assets' refers to those assets that make up 'the profit yielding subject' of an enterprise and are often referred to as 'structural assets'. Paragraph 33 of GSTR 2001/7 states that an asset which is acquired and used for resale in the course of carrying on an enterprise (for example, trading stock) is not a 'capital asset' for the purposes of paragraph 188-25(a). Paragraph 35 continues stating that 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.

In this case you were created under the Court Order for the primary purpose of effecting the sale of the Property. We do not consider your sale of the Property to be a 'transfer of ownership of a capital asset'.

The second limb of 188-25 (paragraph 188-25(b)) provides that in determining your 'projected GST turnover' you do not included supplies made solely as a consequence of ceasing to carry on an enterprise or substantially and permanently reducing the size or scale of an enterprise.

Paragraphs 38 to 41 of GSTR 2001/7 discuss the meaning of the term 'solely as a consequence'. Paragraph 41 of GSTR 2001/7 states that for the purposes of section 188-25 a supply is made, or is likely to be made, 'solely as a consequence' where the supply is made only as a result of the ceasing of an enterprise or the substantial and permanent reduction in size or scale of an enterprise.

In this case, your supply of the Property is not a result or consequence of you ceasing (or substantially and permanently reducing) the size of your enterprise. In this case the ceasing of your enterprise will be a consequence of your sale of the Property.

As such we consider your sale of the Property is neither the disposal of a capital asset nor disposal as a consequence of ceasing to carry on an enterprise. The sale of the Property will therefore be included in your GST turnover. As the sale of the Property meets the GST registration turnover threshold of $75,000, you are required to be registered for GST.

Question 2

Section 9-40 provides that you are liable for GST on any taxable supplies that you make.

Section 9-5 provides 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 for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

The supply of the Property is neither GST-free nor input taxed under any provision within the GST Act.

As previously discussed, the sale of the Property located at <address> was made in the course or furtherance of an enterprise that you carry on. Furthermore, the supply was made for consideration and connected to the indirect tax zone (Australia) and, also as discussed above, you are required to be registered for GST.

Therefore, the sale of the Property is a taxable supply as defined in section 9-5 and you will be liable for GST in respect to the supply pursuant to section 9-40.

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