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Ruling

Subject: GST and sale of property

Question 1

Is the sale of the property a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the sale of the property is not a taxable supply under section 9-5 of the GST Act.

Relevant facts and circumstances

You are not registered for GST.

You owned an industrial building (property).

The property has been leased to a company since its acquisition.

You did not registered for GST as the rent from the property and other business income has always been well below the registration turnover threshold.

You are selling your property.

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 23-5.

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

Reasons for decision

GST is payable on taxable supplies. Section 9-5 of the GST Act states that you make a taxable supply if:

(a) you make the supply for consideration;

(b) the supply is made in the course or furtherance of an enterprise that you carry on;

(c) the supply is connected to Australia; and

(d) you are registered, or required to be registered for GST.

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

In your case, you sold the property for consideration and the supply is connected with Australia. The input taxed supplies provision in the GST Act would not be relevant to your case as the sale relates to a sale of a commercial property.

Next we need to consider whether the supply is made in the course or furtherance of an enterprise that you carry on. A transaction is a supply in the course or furtherance of an enterprise that is carried on, where the supplies can be considered to be connected to your enterprise. The term 'in the course or furtherance' is not defined in the GST Act, but the term is wide enough to cover any supply made in connection with an enterprise and to cover natural incidents and things incidental to the core enterprise activities. Additionally, an act done for the purpose or object of furthering an enterprise, or achieving its goals, is in furtherance of an enterprise although it may not always be in the course of that enterprise.

Section 9-20 of the GST Act provides the definition of enterprise for GST purposes. This definition includes an activity or 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 the property.

Accordingly, we are of the view that you are carrying on a leasing enterprise.

As you carry on a leasing enterprise on the property, the disposal of that property has a connection with your enterprise. Accordingly, the supply of the property will be considered to have been made in the course or furtherance of the leasing enterprise that you carry on. As such, the supply of the property will satisfy paragraph 9-5(b) of the GST Act.

Required to be registered

You are not currently registered for GST. Under 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.

The applicable GST registration turnover threshold is $75,000. You have a GST turnover that meets the registration turnover threshold if your current GST turnover is at or above $75,000 and your projected GST turnover is not below $75,000.

In calculating your GST turnover under Division 188 of the GST Act certain supplies are excluded.

Goods and Services Tax Ruling GSTR 2001/7 considers the ATO view on the meaning of GST turnover and other related issues.

Paragraph 14 of GSTR 2001/7 summarises the types of supplies that are excluded from the calculation of current and project GST turnover:

· supplies that are input taxed;

· supplies that are not for consideration (and not taxable supplies under section 72-5);

· supplies not made in connection with an enterprise that you carry on;

· supplies that are not connected with Australia; and

· supplies made from one member of a GST group to another member of that GST group.

Further, section 188-25 excludes certain supplies made when working out your projected annual turnover. Paragraph 29 of GSTR 2001/7 states:

Section188-25 requires you to disregard the following when calculating your projected annual turnover.

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

The meaning of capital assets is not defined in the GST Act. Capital assets are often referred to as structure assets and may be described as the business entity, structure or organisation set up or established for the earning of profits. It can include tangible assets such as your factory, shop or office, your land on which they stand.

It is to be distinguished from revenue assets which are assets whose realisations are inherent in or incidental to, the carrying on of a business.

The sale of property on which you carry on your leasing enterprise is a transfer of ownership of a capital asset by you.

Therefore, the supply of the property satisfies section 188-25 of the GST Act and as such, the value of the property will not form part of the sum of your projected GST turnover. Consequently, your GST turnover does not meet the registration turnover threshold and you are not required to be registered for GST when you sell the property.

As you are not currently required to be registered for GST and there will be no increase in your GST turnover as a result of the supply of the property, paragraph 9-5(d) of the GST Act will not be satisfied.

In conclusion, as you are not registered or required to be registered for GST, all the conditions of a taxable supply are not satisfied and you will not be making a taxable supply of property under section 9-5 of the GST Act.

Please note that the reasoning in this case applies to the facts provided. Should there be any change to those facts the answer may be different.