Edited version of your private ruling

Authorisation Number: 1012446686579

Ruling

Subject: GST and sale of property

Question

Is the sale of your identified property a taxable supply?

Decision

No.

Relevant facts and circumstances

You are not currently registered for GST.

You were previously registered for GST for a specified period.

You carried on an enterprise providing business consultancy services.

You no longer carry on the enterprise.

You do not carry on any other business activities.

You purchased a strata-titled block of land with the intention to build a residential property to rent.

The construction of a house was completed in 20XX and the house has been rented since that date.

The premises also contain a kitchen and living areas.

You do not own any other rental properties.

The following expenses were not recorded in the accounts of the business:

· capital expense (purchase of land);

· construction costs;

· rental income;

· on-going property expenses (rates, repairs, etc).

The property was not recorded as a business asset.

You intend to sell the property.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 9-5

Section 9-20

Section 9-40

Section 23-5

Division 40

Section 40-35

Division 188

Subsection 188-10(1)

Section 188-15

Section 188-20

Section 188-25

Section 195-1

Reasons for decision

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that GST is payable on taxable supplies made by an entity.

The term 'taxable supply' is defined in section 9-5 of the GST Act and includes the requirement that the supply is made in the course of carrying on an enterprise and you are either registered or required to be registered for GST.

Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number provides guidance on the meaning of 'enterprise' for the purposes of entitlement to an Australian business number.

Paragraph 1 of Goods and Services Tax Determination GSTD 2006/6 Goods and services tax: does MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999? provides that the guidelines in MT 2006/1 are considered to apply equally to the term 'enterprise' as used in the GST Act and can be relied upon for GST purposes.

Carrying on an enterprise

What constitutes an enterprise for GST purposes is defined in section 9-20 of the GST Act and 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 property.

In accordance with paragraph 159 of MT 2006/1, whether or not an activity, or series of activities, constitutes an enterprise is a question of fact and degree having regard to all of the circumstances of the case.

Paragraph 234 of MT 2006/1 distinguishes between a business and an adventure or concern in the nature of trade. It provides that the term business would encompass trade engaged in, or on a regular or continuous basis. However, it goes on to say that an adventure or concern in the nature of trade may be an isolated or one-off transaction that does not amount to a business.

Paragraphs 303 through 322 of MT 2006/1 discuss the phrase 'on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property'. The phrase does not relate to the sale or trade of the property but rather the activity of a lessor or grantor of the interest in the property.

Paragraph 306 of MT 2006/1 states in part that to be an enterprise, the grant of a lease, licence or other grant of an interest in property must be done on a regular or continuous basis. The grant need not be done on both a regular and a continuous basis. An activity will be 'continuous' if there is no significant cessation or interruption to the activity. An activity is 'regular' if it is repeated at reasonably proximate intervals. The intervals need not be fixed.

In this case, the property has been leased since 20XX and would fall within the scope of an activity done on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property. Therefore it is considered that you are carrying on enterprise of leasing.

For a supply to be a taxable supply, the supply must be made in the course or furtherance of an enterprise that you carry on. The term 'carrying on' an enterprise is defined in section 195-1 of the GST Act to include doing anything in the course of commencement or termination of the enterprise.

The sale of the rental property is considered to be a supply made in the course of terminating your leasing enterprise.

Registered or required to be registered for GST

Section 23-5 of the GST Act states that you are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold (currently $75,000 unless you are a non-profit body).

Division 188 of the GST Act explains the meaning of GST turnover. Subsection 188-10(1) of the GST Act states:

1. You have a GST turnover that meets a particular turnover threshold if:

(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 terms 'current GST turnover' and 'projected GST turnover' are defined in sections 188-15 and 188-20 of the GST Act respectively and specifically exclude supplies that are input taxed.

Section 188-25 also excludes from calculating your projected GST turnover:

· any supply made by way of the transfer of ownership of a capital asset; and

· any supply made solely as a consequence of ceasing to carry on an enterprise.

Supplies that are input taxed are contained in Division 40 of the GST Act. Section 40-35 of the GST Act provides that a supply of premises by way of lease, hire or licence is input taxed to the extent it is a supply of residential premises (other than commercial residential premises) to be used predominately for residential accommodation.

The premises constructed contain a number of bedrooms, a number of bathrooms, kitchen and living areas and are considered to be residential premises to be used predominately for residential accommodation.

The term 'commercial residential premises is defined in section 195-1 of the GST Act to include a hotel, motel, inn, hostel, boarding house or anything similar. Given the facts of this case, there are no indications the premises in question would fall within the definition of being commercial residential premises.

Given the above, your supply of the house by way of lease will constitute an input taxed supply. The consideration received for the supply will be excluded from the calculation of both your current and projected GST turnover by virtue of sections 188-10 and 188-20 of the GST Act.

The sale of the house will also be excluded when calculating your projected GST turnover pursuant to section 188-25 of the GST Act given the sale will result in the transfer of ownership of a capital asset. Additionally, the sale of the property, your sole rental property, will result in the cessation of your leasing enterprise.

As a sole trader, your GST turnover is the sum of the turnovers of all your enterprises that you carry on. You do not carry on any other enterprises in your capacity as a sole trader. As the turnover from your leasing enterprise is excluded in the calculation of your GST turnover you are not required to be registered for GST in accordance with section 23-5 of the GST Act.

In conclusion, as you are not registered or required to be registered for GST, the sale of the identified property will not constitute a taxable supply.