Edited version of private ruling

Authorisation Number: 1011879335862

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Ruling

Subject: GST: required to be registered

Question

Will your supply of the property be a taxable supply?

Answer

No your supply of the property will not be a taxable supply.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are not registered for GST.

You purchased the property for $xxxx in mmyyyy, with the intention of holding the land for future (unspecified) use.

In mmyyyy, one of you was diagnosed with a serious illness.

At that stage, you decided to build your own residence on the property and downsize from your current residence.

In mmyyyy, you began building on the property.

Construction was completed in mmyyyy.

On ddmmyyyy, you began residing at the property and started to move your belongings from your current residence.

On ddmmyyyy, after moving some of your items into the property, you felt that the stress associated with the move was having a negative and detrimental effect healthwise. Under the guidance of health professionals, you felt it was best to move back into your original (current) residence.

You then commenced to rent out the property.

After further consideration, you felt that the extra financial burden of having two properties was too great, given that one of you would soon be unable to continue with their employment.

As a result, the property has been listed for sale.

You do not have any business income apart from the rental of the property.

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 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:

· made for consideration

· made in the course of furtherance of an enterprise carried on by the entity making the supply

· connected with Australia, and

· 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.

You are selling property, located in Australia, for consideration. There is no provision of the GST Act that would make the supply of the property, in your factual situation, GST-free or input taxed. However, the conditions for making a taxable supply include that you are carrying on an enterprise and are either registered or required to be registered for GST.

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…

You built the property for use as your place of residence. However, from ddmmyyyy, you commenced renting the property. This constitutes a leasing enterprise in accordance with the above definition.

The property is held jointly in your names. You are not registered for GST, as individuals or as a partnership. 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).

Under section 188-10 of the GST Act your GST turnover is calculated with reference to your current GST turnover and your projected GST turnover.

As provided in subsection 188-10(2) of the GST Act, your GST turnover does not exceed 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 the property, your current GST turnover was nil, as residential rental income is input taxed in accordance with section 40-35 of the GST Act. However, at the time of settlement of your property, the sale proceeds will also be included in your current GST turnover, which will consequently exceed the registration turnover threshold.

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 meaning of capital assets is not defined by the GST Act. However Goods and Services Tax Ruling GSTR 2001/7 considers the meaning of 'capital asset' for the purposes of section 188-25 of the GST Act.  Paragraph 31 of GSTR 2001/7 states the term 'capital assets generally refers to those assets that make up 'the profit yielding subject' of an enterprise. They are often referred to as 'structural assets' and may be described as 'the business entity, structure or organisation set up or established for the earning of profits.' Paragraph 32 of GSTR 2001/7 also states 'Capital assets' can include tangible assets such as your factory, shop or office, your land on which they stand, that are retained by you to produce income.

Paragraph 33 of GSTR 2001/7 further states that capital assets are 'radically different from assets which are turned over and bought and sold in the course of trading operations' and '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) of the GST Act.'

Based on the facts provided we consider the property being sold 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 not registered, nor required to be registered for GST, the sale of your property will not be subject to GST.