Edited version of your private ruling

Authorisation Number: 1012447786018

Ruling

Subject: Sale of property

Question

Will the sale of the two subdivided properties be subject to GST?

Answer

No, the sale of the two subdivided properties will not be subject to GST.

Relevant facts and circumstances

You are carrying on a leasing enterprise.

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

You are the sole director of a company.

You purchased a property consisting of two commercial buildings (shops) and residential premises at the back of the shops.

The purchase was made before 1 July 2000.

The property was purchased under a single title in your name and not in the name of the company of which you are the sole director.

You occupied the residential premises as your personal living quarters.

You leased the two shops to the company of which you are the sole director.

The annual rent from the two shops is less than the GST registration threshold.

You subdivided the property into two lots a few years back, each having a residential area at the back.

You have not made any improvements to the properties since you purchased them.

You do not own any other properties.

You now intend to sell the two lots.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) Section 9-5

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

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) Section 23-15

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

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) Section 188-15

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) Section 188-20

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

Reasons for decision

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that:

You make a taxable supply if:

(a)     you make the supply for *consideration; and

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

(c)     the supply is *connected with Australia; and

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

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

(* Denotes a term defined in the GST Act.)

For the supply of the two subdivided properties to be taxable under the GST Act, all of the four conditions specified in section 9-5 of the GST Act must be satisfied and, the supply must not be excluded as GST-free or as input taxed. One of the four conditions that must be satisfied to make a taxable supply is that you have to be either registered or required to be registered.

Section 23-5 of the GST Act states:

 You are required to be registered under this Act if:

 (a)     you are carrying on an enterprise; and

(b)     your GST turnover meets the registration turnover threshold.

 Note: It is the entity that carries on the enterprise that is required to be registered (and not the enterprise).

Subsection 23-15(1) of the GST Act states:

 Your registration turnover threshold (unless you are a non-profit body) is:

  (a) $50,000; or

(b)  such higher amount as the regulations specify.

Under GST regulation 23-15.01, the current registration turnover threshold is $75,000 for entities other than non-profit bodies.

 Subsection 188-10(2) of the GST Act states:

 You have a GST turnover that does not exceed a particular turnover threshold if:

 

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

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

Subsection 188-15(1) of the GST Act states:

 Your current GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during the 12 months ending at the end of that month, other than:

 (a)  supplies that are input taxed; or

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

(c)  supplies that are not made in connection with an enterprise that you carry on.

You informed us that your current GST turnover is less than $75,000. However, you also informed us that you intend to sell the two leased commercial premises together with your residential premises (which constitute the two subdivided properties). It is therefore necessary to determine whether the sale of the two subdivided properties would lead to your projected GST turnover exceeding the GST registration turnover threshold.

 Subsection 188-20(1) of the GST Act states:

 Your projected GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during that month and the next 11 months, other than:

(a)  supplies that are input taxed; or

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

(c)  supplies that are not made in connection with an enterprise that you carry on.

Section 188-25 of the GST Act states:

 In working out your projected GST turnover, disregard:

 (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.

Goods and Services Tax Ruling GSTR 2001/7 (GSTR 2001/7) refers to the meaning of GST turnover including the effect of section 188-25 on projected GST turnover. Paragraphs 31-32 of the ruling state:

 31. The GST Act does not define the term capital assets. Generally, the term capital assets refers to those assets that make up the profit yielding subject of an enterprise. They are often referred to as structural assets and may be described as the business entity, structure or organisation set up or established for the earning of profits.

 32. 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.

The two subdivided properties you intend to sell can be treated as a capital asset owned by you, as they were used by you to produce income. When you sell the two properties, on the settlement date, you will transfer the ownership of your capital asset to the purchaser. Under paragraph 188-25(a) of the GST Act, such a supply is disregarded in working out your projected GST turnover.

Therefore, in working out your projected GST turnover, the value of the two subdivided properties should not be taken into account. Consequently, although the proceeds of the supply of your two subdivided properties may exceed $75,000, your projected GST turnover will continue to be less than $75,000. Therefore, you are not required to be registered for GST.

As you are neither registered nor required to be registered, the supply of the two subdivided properties will not be taxable under the GST Act.