Edited version of private ruling

Authorisation Number: 1011478120987

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Ruling

Subject: GST and sale of property

Question

Will the sale of the properties be a taxable supply?

Answer

No, the sale of the properties will not be a taxable supply as you are not registered or required to be registered for goods and services tax (GST).

Relevant facts and circumstances

You are currently not registered for GST.

You were previously registered for GST during which you leased properties. You cancelled your GST registration after you sold one of the properties.

You own several blocks of land (the properties). One block has office accommodation on it and the other vacant land.

The properties were purchased pre GST and are not subject to finance.

The properties are leased to a tenant who uses the building as an office and the remaining blocks as staff and client parking.

A current lease agreement is in place for all blocks and the tenant pays all outgoings on the blocks.

The annual rent and outgoings you charge for the properties is less than $75,000.

You obtained information from a local real estate agent that the average annual rent for a similar property in the area is less than $75,000.

You plan to sell the properties.

You have had a potential buyer who was interested in the properties which were, at that time, marketed to sell for more than $75,000. However this deal fell through.

You do not own any other property or carry on any other enterprise.

Reasons for Decision

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you must pay GST on any taxable supply that you make.

Under section 9-5 of the GST Act, you make a taxable supply if:

· you make the supply for consideration

· the supply is made in the course or furtherance of an enterprise that you carry on

· the supply is connected with Australia, and

· 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.

To be a taxable supply, all of the elements of section 9-5 of the GST Act must be satisfied.

In this case, the sale of the properties will be made for consideration and the sale is connected with Australia because the properties are located in Australia. Therefore, it must be determined whether the sale of the properties is made in the course or furtherance of an enterprise that you carry on and as you are not registered for GST, if you are required to be registered for GST.

Carrying on an enterprise

The term 'enterprise' is defined in section 9-20 of the GST Act to include, 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.

From the facts provided, it is considered that you are carrying on an enterprise in the form of a lease of an interest in property because you have been leasing the properties for a number of years.

Therefore it is necessary to consider whether you are required to be registered for GST when you sell the property.

Requirements to be registered for GST

Section 23-5 of the GST Act provides that an entity that is not a non-profit body is required to be registered for GST if:

· it is carrying on an enterprise, and

· its GST turnover meets the registration turnover threshold of $75,000.

As you are carrying on an enterprise, it needs to be determined whether your GST turnover is $75,000 or more.

The term 'GST turnover' includes both current GST turnover and projected GST turnover. Current GST turnover is the value of all supplies (not just taxable supplies) made, or likely to be made during the current month plus the previous 11 months. Projected GST turnover is the value of all supplies (not just taxable supplies) made, or likely to be made during the current month plus the next 11 months.

However, section 188-25 of the GST Act specifically excludes from the calculation of projected annual turnover:

· the supply of a capital asset by way of transfer of its ownership, and

· any supply made as a consequence of ceasing to carry on an enterprise or substantially and permanently reducing the size or scale of an enterprise.

The Commissioner's view on the application of section 188-25 of the GST Act is contained in Goods and Services Tax Ruling GSTR 2001/7. Paragraph 31 of this ruling provides that a capital asset is generally the profit-yielding subject of an enterprise. This can be contrasted with a revenue asset, which is described in paragraph 34 of this ruling as an asset 'whose realisation is inherent in, or incidental to, the carrying on of a business'.

The sale of capital assets would generally be a taxable supply if the supplier is registered or required to be registered for GST.

In this case, we consider the properties as capital assets because they are the profit yielding subject of your leasing enterprise.

From the facts provided, your current GST turnover is less than $75,000 (rent you received plus outgoings paid by the tenant), the requirement to be registered for GST occurs if your projected GST turnover is $75,000 or more.

Under section 188-25 of the GST Act, when calculating your projected GST turnover, you do not include any supplies made by way of transfer of ownership of a capital asset or as a result of ceasing an enterprise or substantially and permanently reducing the size and scale of an enterprise. Therefore, as we consider the properties to be capital assets, the proceeds from the sale of the properties will be disregarded in working out your projected GST turnover.

As a result, your projected GST turnover is below $75,000.

Because your current GST turnover and projected GST turnover is below $75,000, you do not meet the GST registration turnover threshold. You are not required to be registered for GST when you sell the properties.

In conclusion, the sale of the properties will not satisfy the conditions of a taxable supply because you are registered or required to be registered for GST. As such, the sale will not be subject to GST.