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Ruling
Subject: GST and sale of assets
Question 1
Is GST payable when you sell certain assets used in your enterprise?
Answer
Yes. When you sell these assets for market value you will be liable for GST.
Relevant facts and circumstances
You are a not-for-profit entity.
You are registered for GST, and endorsed as a charitable institution entitled to GST concessions.
You intend to sell a number of assets that you have been using in your enterprise.
The assets are over 50 years old and you do not have records of the original purchase or cost of the assets.
You have an indication of the value of consideration anticipated based on verbal offers.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999
Reasons for decision
Summary
When you make a supply of assets for consideration it will be a taxable supply. This is because the supply is made for consideration and in the course of your enterprise, it is connected with Australia and you are registered for GST (section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
A supply is only taxable to the extent that it is not GST-free or input taxed. However, there are no provisions that can operate to make your sale GST-free.
Detailed reasoning
As a registered charitable institution, your commercial activities are taxable but your non-commercial activities can be GST-free. This means that if you make non-commercial sales you do not pay GST on the payments that you receive.
Non-commercial sales refer to those sales where the payment received for the sale is less than cost or less than market value. Under Section 38-250 of the GST Act a supply is GST-free if the amount charged is either:
§ less than 50% of the GST-inclusive market value of the supply, or
§ less than 75% of the amount that you paid to purchase the item that is subsequently sold.
The term 'market value' is not defined in the GST Act. However, the Charities consultative committee resolved issues document (available on our website) provides information on determining the market value of a supply in this context at Issue 1. This issue, including the sections, tables and issues contained in it, is a public ruling for the purposes of section 105-60 of Schedule 1 to the Taxation Administration Act 1953.
For the purposes of the non-commercial supply rules, we consider that the market value of a thing is the price that would be negotiated between:
§ a knowledgeable, willing and not anxious buyer, and
§ a knowledgeable, willing and not anxious seller acting at 'arm's length' in an appropriate market.
Based on this definition, when you sell the assets on the open market the consideration received for the supply will be taken to be the market value.
In your circumstances, you have obtained current market indications by way of considering verbal offers made by potentially interested parties. Based on this, you have established the approximate amount of consideration that can be anticipated. This is therefore the market value of your supply.
Where you sell the assets for at least 50% or more of this market value this cannot be considered to be a non-commercial sale. Therefore, the sale will be subject to GST.
As you do not have information available regarding the amount initially paid to acquire the assets it is not possible to consider whether the amount you may receive is less than 75% of the consideration you provided to acquire the assets.
The consideration you provided is the actual amount of consideration provided at the time, not adjusted for inflation. As the assets were purchased over 50 years ago it is reasonable to assume that a comparatively small amount of consideration (in today's dollars) was provided at that time. Therefore you would not receive now less than 75% of the amount you paid back then. Therefore we cannot consider that the supply is GST-free under the 'cost of supply' exception either.
Therefore the supply will be taxable.