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Ruling

Subject: GST and sale of property

Questions

Are you carrying on an enterprise for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Are you required to be registered for GST?

Answers

No, you are not carrying on an enterprise for the purposes of the GST Act.

No, you are not required to be registered for GST.

Relevant facts and circumstances

You are approaching retirement.

You are not registered for GST.

As part of organising your assets for retirement, you are looking to dispose of a property. The proceeds of sale will be used to invest in income producing assets that are required to support your retirement.

The property currently contains a house. The house sits across several separate titles of land.

Your intention at the date of purchase was to hold the property as a long term investment and to derive rental income. The property has been rented since its acquisition.

You have attempted to sell the property in an "as is" state. You have not been able to realise the property for a reasonable value due to the depressed property market.

You are considering clearing the property by removing the house and existing trees and will attempt to sell the blocks of land separately. You believe that you will maximise the realisation value of the property by undertaking this process.

You will not do any further work to the blocks except have the blocks surveyed and pegged. You will engage contractors to clear and remove the trees. You will endeavour to sell the house for a minimal amount so long as the purchaser is responsible and takes care of the house removal.

You have no history or previous experience in property development.

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 9-40.

A New Tax System (Goods and Services Tax) Act 1999 Section 23-5.

A New Tax System (Goods and Services Tax) Act 1999 Section 188-10.

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

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.

As you will be selling cleared blocks located in Australia for consideration, there is no provision of the GST Act that would make the supply of the blocks 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 commenced renting the property since its acquisition in 20XX. This constitutes a leasing enterprise in accordance with the above definition.

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).

You are currently carrying on a leasing enterprise and this enterprise will not cease when the house on the property is removed or demolished. This is because section 195-1 of the GST Act provides that carrying on an enterprise includes doing anything in the course of the commencement or termination of the enterprise. Therefore, the first requirement of section 23-5 of the GST Act is satisfied.

In respect of the second requirement, 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.

In your situation, the registration turnover threshold is met when your current GST turnover and your projected GST turnover is equal to or greater than $75,000. The current GST turnover is the sum of the value of all supplies made in a particular month plus the previous 11 months. The projected GST turnover is the sum of the value of all supplies made in a particular month plus the next 11 months.

However, supplies that are input taxed (for example, residential rent) are specifically excluded from the calculation of both current and projected GST turnover.

Before the sale (settlement) of your interest in the cleared blocks, your current GST turnover will consist only of income from the leasing of residential rental property which is excluded from the calculation of your current GST turnover. However, at the time of settlement of your interest in the cleared blocks, the proceeds from the sale of the cleared blocks may result in you exceeding the registration turnover threshold of $75,000.

Therefore, if your projected GST turnover also exceeds the registration turnover threshold, you will be required to be registered for GST.

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.

Paragraph 31 of Goods and Services Tax Ruling GSTR 2001/7 provides that a capital asset is generally the profit-yielding subject of an enterprise. This is different from a revenue or trading asset, which is described in paragraph 34 of the ruling as an asset 'whose realisation is inherent in, or incidental to, the carrying on of a business.'

In your case, you are undertaking the removal or demolition of the house in order to maximise your return on the sale of the property. You are not borrowing any funds or acquiring any additional land and no buildings will be constructed on the two cleared blocks before sale.

Therefore, based on the information provided, it is considered that the character of the property is in the nature of a capital asset.

Although the sale proceeds from the cleared blocks will be included in your current GST turnover, the proceeds of the sale will not be included in your projected GST turnover as the proceeds are from the sale of a capital asset.

Consequently, your GST turnover will not meet the registration turnover threshold and therefore, you will not be required to be registered for GST.

As you are not registered or required to be registered for GST, the sale of your interest in the cleared blocks will not be subject to GST.