Edited version of your private ruling

Authorisation Number: 1012095627622

This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: sale or real property

Question

Are you liable for goods and services tax (GST) on the sale of a capital asset?

Answer:

No

Relevant facts:

You are currently carrying on an enterprise.

You are not registered for the goods and service tax (GST).

You are currently not required to be registered for GST as your GST turnover is less than the registration turnover threshold.

You want to terminate your enterprise and are carrying out the activities to cease the enterprises.

You expect to receive an amount in excess of $ 75,000 from the disposal of the capital asset

Reasons for decision

You pay GST on taxable supplies you make. Under section 9-5 of the GST Act, you make a taxable supply if:

§ the supply is made for consideration

§ the supply is made in the course or furtherance of your enterprise

§ the supply is connected with Australia, and

§ you are registered, or required to be registered for GST.

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

The supply of the capital asset is not GST-free nor input taxed. Therefore we have to consider whether the supply satisfies the criteria in section 9-5 of the GST Act to be a taxable supply. The criteria in section 9-5 of the GST Act are:

(a) You are supplying the capital asset for consideration.

(b) You make the supply in the course of your enterprise

The meaning of enterprise is explained in the Miscellaneous Taxation Ruling MT 2006/1. Paragraph 140 of MT 2006/1 states

Carrying on an enterprise includes doing anything in the course of the termination of the enterprise. An enterprise terminates when the activities related to that enterprise cease. Ordinarily, that occurs when all assets are disposed of or converted to another purpose or use and all obligations are satisfied. Disposal of assets may include the sale, scrapping, or other disposal of the assets.

You advised that you want to terminate your enterprise and are carrying out the activities to dispose the capital assets as part of the termination

(a) The supply is connected with Australia.

(b) You are currently not registered for GST. We need now to consider whether your supply of capital asset requires you to be registered.

Where you are required to be registered and the supply satisfies the criteria in section 9-5 of the GST Act, the sale of the property is a taxable supply. However, if you are not required to be registered and the supply does not satisfy the criteria in section 9-5 of GST Act, the supply is not a taxable supply.

Registration

Whilst you are not currently registered for GST, you may be required to register for GST under section 23-5 of the GST Act if, as a result of this particular transaction, your GST turnover exceeds the registration turnover threshold (ie: $75,000).

Section 23-5 of the GST Act provides that an entity is required to register for GST if

§ the entity is carrying on an enterprise, and

§ the entity's GST turnover meets the registration turnover threshold.

You satisfy the first criterion as you are carrying on activities to terminate your enterprise. Next we have to consider the second criterion which is whether the sale affects your GST turnover for registration purposes.

GST turnover

The meaning of GST turnover is outlined in the Goods and Services Tax Ruling GSTR 2001/7. We enclose a copy of the ruling for your reference.

Paragraph 9 of GSTR 2001/7 is relevant when considering whether your GST turnover meets the registration turnover threshold. The paragraph states

Section 188-10 is relevant for working out whether your GST turnover meets, or does not exceed, a turnover threshold. In calculating the electronic lodgment, registration and tax period turnover thresholds, you have a GST turnover that meets a particular turnover threshold under subsection 188-10(1) when:

(a) your current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the turnover threshold; or

(b) your projected GST turnover is at or above the turnover threshold.

The meaning of current GST turnover is outlined in paragraph 11 of GSTR 2001/7 which states:

Section 188-15 defines 'current GST turnover'. Subject to the exclusions listed in paragraph 14, 'current GST turnover' at any time during a particular month is the sum of the values of all the supplies that you made, or are likely to make, during the current month and the preceding 11 months.

The sale of your capital assets is not listed in paragraph 14 of GSTR 2001/7.

In your case, your current GST turnover exceeds the registration when you include the sale of capital asset. However, under paragraph 188-10(1)(a) of the GST Act, an entity's GST turnover meets the registration turnover threshold if the Commissioner is not satisfied that the entity's projected GST turnover is below the registration turnover threshold. Therefore, we need to work out your projected GST turnover.

Projected GST turnover

The meaning of projected GST turnover is outlined in paragraph 12 of GSTR 2001/7 which states:

Section 188-20 defines 'projected GST turnover'. Subject to the exclusions listed in paragraph 14, 'projected GST turnover' at a time during a particular month is the sum of the values of all the supplies that you made, or are likely to make, during that month and the next 11 months.

In addition, when working out the projected GST turnover under section188-20 of the GST Act, we have to consider the application of section 188-25 of the GST Act on supplies of capital assets. Paragraph 29 of GSTR 2001/7 states:

Section 188-25 modifies the effect of section 188-20 by excluding certain supplies made when working out your projected GST turnover. Section 188-25 requires you to disregard the following when calculating your projected GST 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 first criterion in section 188-25 of the GST Act is that it must be a supply of capital assets. The meaning of capital asset is explained in paragraphs 31 to 36 of GSTR 2001/7. Paragraph 32 of GSTR 2001/7 states:

'Capital assets' can include tangible assets such as your factory, shop or office, your land on which they stand, fixtures and fittings, plant, furniture, machinery and motor vehicles that are retained by you to produce income. 'Capital assets' can also include intangible assets, such as your goodwill.

As your asset is retained by you to produce income, we consider it is a capital asset. You are selling the capital asset as one of the activities to terminate your enterprise. Therefore, section 188-25 of the GST Act applies to the sale of the capital asset and the supply is excluded when working your projected GST turnover under section 188-20 of the GST Act.

You are currently not required to be registered for GST as your GST turnover is less than the registration turnover threshold. The sale of the capital asset does not affect your projected GST turnover. Based on this information, the Commissioner is satisfied that your projected GST turnover is below the registration turnover threshold and your GST turnover (calculated under paragraph 188-10(1)(a) of the GST Act) does not meet the registration turnover threshold. Therefore, you do not satisfy the criteria in section 23-5 of the GST Act and are not required to be registered for GST.

As you are not registered nor required to be registered for GST, the sale of capital asset is therefore not a taxable supply under section 9-5 of the GST Act.