Edited version of private advice

Authorisation Number: 5010074339201

Date of advice: 13 April 2021

Ruling

Subject: GST and sale of property

Question

Will the sale of the townhouse units be subject to GST?

Answer

No. The sale of the townhouse units will not be subject to GST.

The sale of the townhouse units will be a mere realisation of capital assets that will be disregarded in calculating your GST turnover; thus, your GST turnover will not meet the registration turnover threshold. As such, you will not be required to register for GST for the purpose of paragraph 9-5(d) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and the sale will not be a taxable supply under section 9-5 of the GST Act.

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 townhouse units. This can be included in the sale contract or in a separate document prior to settlement.

Relevant facts and circumstances

You are not registered for GST and carry on a leasing enterprise. You were established for the purpose of holding long term investments for leasing.

You previously bought 50% interest in properties known located at (address). The properties were not developed; but were sold after a tenant who operated a business from the property terminated the lease.

The only other property you own is a 50% interest in commercial premises located at (address) acquired in 20XX. This property is currently leased and is not intended to be developed and sold. The turnover from leasing the premises was less than $XXX for the 20XX financial year and would be similar for 20XX.

In 20XX, you purchased a property containing an old house (the property) with the intention of renting it out. The property was leased upon settlement of the contract.

The purchase price of the property was approximately $XXX which was funded by a regular long-term loan.

In 20XX, you approached estate agents for a rental appraisal if the property were to be developed into two townhouses.

As the appraisals were within range of each other, you decided to develop the property with the intention of renting the two townhouse units. You entered into a contract to demolish the house on the property and build two townhouse units on the site. The house was leased until it was demolished.

The build contract price for the two units was $XXX. The construction is funded by refinancing your loan. The term of the loan is XX years.

You engaged a builder at arm's length.

You did not claim input tax credits for the costs of building the townhouse units as you intend to hold them as rental investments.

While the townhouses were being built, your associate decided to sell their family's main residence build a new residence elsewhere. This decision was made due to the declining health of your associate's parent. They wished to move closer and build a house that supports the parent's needs if required. The school transport needs for their children are also closer to the new family home location.

The family house took months to sell and due to the property market condition, the house was sold at $XXX less than the original asking price. As a result, the change in their financial and personal position required them to evaluate their funding requirements for the new family home.

You are considering selling at least one of the townhouse units if necessary, to meet the financial requirements for the new family home. Neither of the townhouse units have been listed on the market.

You will continue to carry on your leasing enterprise even after the townhouse units are sold.

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

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

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