Edited version of private ruling

Authorisation Number: 1011671104783

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Ruling

Subject: Supply of real property

Question

Would your supply of the particular property be a taxable supply?

Advice/Answers

No, your supply of the property would not be a taxable supply.

Relevant facts

X (deceased) was the registered owner of the property and the residuary interest, if any, is with the estate.

X died a few years ago.

Since then, relatives of the deceased have been attending to the interests of the estate.

X was not registered for GST during the period that he was the legal owner of the property. His estate is also not registered for GST.

Construction of the premises occurred largely between 200X and 200Y. No GST was claimed in respect of any construction costs or other acquisitions. Nor has GST been charged to tenants of the premises.

The property consists of several duplexes on approximately 5 acres of land.

The property is currently managed as holiday rental accommodation.

Your annual turnover is less than $75,000 per annum.

The property has been sold, by Party B as mortgagee in possession.

You require this ruling to provide to Party B to assure them that you, the mortgagor, were not required to be registered and accordingly, your supply of the property would not be a taxable supply.

Reasons for decision

Would your supply of the property at XXXX be a taxable supply?

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

As defined in section 9-5 of the GST Act, a supply is taxable if it is:

(a) made for consideration

(b) made in the course of furtherance of an enterprise that you carry on

(c) connected with Australia, and

(d) made by an entity registered or required to be registered.

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

Consideration

You will receive consideration for the supply of the property.

Enterprise

As defined in subsection 9-20(1) of the GST Act an enterprise includes an activity, or a series of activities, done:

· in the form of a business, or

· in the form of an adventure or concern in the nature of trade, or

· on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property; or

The property was, and continues to be, managed as holiday rental accommodation. Therefore, you are conducting a leasing enterprise in accordance with the above definition.

Connected with Australia

You will be making a supply for consideration of property located in Australia. Therefore, the supply will be connected with Australia.

Required to be registered

You are not registered for GST. Therefore, it needs to be determined whether you are required to be registered.

As provided in section 23-5 of the GST Act, you are required to be registered if:

· you are carrying on an enterprise, and

· your GST turnover meets the registration turnover threshold (currently $75,000).

Section 188-10 of the GST Act provides that your GST turnover is calculated with reference to your current GST turnover and your projected GST turnover.

As provided in subsection 188-10(1) of the GST Act, your GST turnover meets a particular threshold if:

· your current GST turnover is at or below the turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is above the turnover threshold, or

· your projected GST turnover is at or below the turnover threshold.

Before the sale (settlement) of your property, your current turnover, which consists of revenue from holiday rental accommodation, will be less than $75,000 per annum. Therefore your current GST turnover will also be less than $75,000. However, at the time of settlement of your property, the sale proceeds from the supply of the property (new residential premises) will also be included in your current GST turnover.

Therefore, if your projected GST turnover also exceeds the registration turnover threshold, you will exceed the registration threshold.

Paragraph 188-25(a) of the GST Act provides that in working out your projected GST turnover, you disregard any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours.

The GST Act does not define the term capital asset. The meaning of 'capital asset' is discussed 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 (GST 2001/7). Paragraphs 31 to 36 of GSTR 2001/7 explain that generally, the term capital assets refers to those assets that make up the profit yielding subject of an enterprise.

Capital assets are distinguished from revenue assets. A revenue asset is an asset whose realisation is inherent, or incidental to, the carrying on of a business. 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.

Your property was built for and applied to the provision of holiday rental accommodation. Therefore, the property that you are selling is a capital asset and the proceeds of the sale will not be included in your projected GST turnover.

It follows that your GST turnover will not meet the registration turnover threshold and you are not required to be registered for GST.

As you are neither registered, nor required to be registered for GST, the sale of your property will not be a taxable supply.