Edited version of private advice

Authorisation Number: 1052033311194

Date of advice: 14 September 2022

Ruling

Subject: GST - property

Question

Will the sale of the properties by the Trustee be taxable supplies in accordance with section 9-5 of the GST Act?

Answer

No. The sale of the properties will not be taxable supplies for the purposes of section 9-5 of the GST Act.

This ruling applies for the following period:

Financial year ending 30 June 20XX

The scheme commences on:

The date this ruling is issued

Relevant facts and circumstances

Trust 1 acquired a property (property 1).

Trust 2 acquired an adjoining property (property 2) which has a residential premises situated on it.

The 2 trusts have the same trustee.

The properties are currently leased to the same third party.

Property 1 however the tenant in property 2 is permitted to use the property.

The rental income generated in $XX per annum.

The trustee has been approached to sell the properties and have decided it is in the best interest of the unit holders to sell.

A third party has entered into a contract of sale for an amount of consideration of $XXX

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

Reasons for decision

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 being carried 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.

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

In this case, the properties to be sold will consist of properties that are located in the indirect tax zone and the supply would be for consideration. Therefore, the sale of the properties would satisfy two elements outlined above (1&3). Accordingly, we need to determine whether the other two elements (2&4) would also be satisfied. If this were the case the sale of the properties would satisfy all of the requirements of section 9-5 of the GST Act and would be a taxable supply.

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 a series of activities done:

•         in the form of a business (paragraph 9-20(1)(a) or

•         in the form of an adventure or concern in the nature of trade (paragraph 9-20(1)(b)).

The phase 'carry on' in the context of an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on and enterprise for the purposes of entitlement to an Australian Business Number (MT2006/1) provides the Tax Office view on the meaning of 'enterprise' for the purposes of entitlement to an ABN.

Goods and Services Tax Determination GSTD 2006/6 Goods and Services Tax: MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999, provides that the discussion on MT 2006/1 applies equally to the term 'enterprise' as used in the GST Act and can be relied upon for GST purposes.

In this case the Unit Trusts are carrying on a leasing enterprise, being the leasing of the properties to a third party. The property consists of vacant land and a residential premises.

The properties are the asset that enables the leasing enterprise to be carried on. As there is a residential premises located on property 2 the Trusts are making input taxed supplied of residential premises in accordance with paragraph 40-35(2)(a) of the GST Act. The balance of the properties being leased are being used for farming activities.

Division 188 of the GST Act provides the meaning of GST turnover. Section 188-20 of the GST Act stats that your projected GST 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 supplies that are:

(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.

The Trusts are not registered for GST based on the type of supplies being made to date, being input taxed supplies of residential premises which is excluded from the turnover calculation (section 188-20 of the GST Act).

As the current turnover as a whole is $XX per annum, the turnover threshold of $75,000 (section 23-5 of the GST Act) is not exceeded and as a result the Trusts are not required to be registered for GST.

Section 188-25 states that in working out your projected turnover, disregard:

(a)  any supply made, or likely to be made, buy 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.

In this case, the properties being sold are the capital assets that enable the leasing enterprise to be conducted. Once sold, the leasing enterprise will cease to be carried on by the Trusts. Therefore, the sale of the properties will not be included in the calculation of projected turnover.

As a result, the Trusts are not required to be registered for GST under section 23-5 of the GST Act and the sale of the properties will not be a taxable supply in accordance with section 9-5 of the GST Act.

Conclusion

The Trusts are not required to be registered for GST. As such, there will be no GST liability in relation to the sale of the properties in accordance with section 9-40 of the GST Act.

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