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Edited version of your private ruling
Authorisation Number: 1012468043705
Ruling
Subject: Goods and services tax (GST) and sale of property
Question
Will GST be payable on the sale of the property?
Answer
No.
Relevant facts and circumstances
The partnership of Individual 1 and Individual 2 (the partnership) is not registered for GST, but was formerly registered for GST.
Individual 1 and Individual 2 own a property located in Australia (the property).
Individual 1 and Individual 2 purchased the property many years ago. They purchased the property to use as their residence.
There is a house on the property, which was on the property when Individual 1 and Individual 2 purchased the property.
Individual 1 and Individual 2 used the house as their residence and this was the case for their entire period of ownership of the property.
Individual 1 and Individual 2 did not substantially renovate the house.
There are also business premises on the property, which Individual 1 and Individual 2 built. The business premises are designed for use in a particular type of business.
The partnership of Individual 1 and Individual 2 operated a business from the business premises until they sold the business a number of years ago.
The partnership of Individual 1 and Individual 2 rent out the business premises to another entity that operates a business in those premises. The current business owner is not Individual 1 or Individual 2.
Individual 1 advised the Australian Taxation Office that Individual 1 and Individual 2 do not earn more than $75,000 a year from all sources of income. Our records show that the partnership earns much less than $75,000 a year from its enterprise activities.
Individual 1 and Individual 2 will sell the property.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)
A New Tax System (Goods and Services Tax) Act 1999 section 9-5
A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-20(1)(c)
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 paragraph 23-15(1)(b)
A New Tax System (Goods and Services Tax) Act 1999 subsection 40-65(1)
A New Tax System (Goods and Services Tax) Act 1999 subsection 40-65(2)
A New Tax System (Goods and Services Tax) Act 1999 section 40-75
A New Tax System (Goods and Services Tax) Act 1999 subsection 40-75(1)
A New Tax System (Goods and Services Tax) Act 1999 subsection 40-75(2)
A New Tax System (Goods and Services Tax) Act 1999 subsection 188-10(1)
A New Tax System (Goods and Services Tax) Act 1999 subsection 188-15(1)
A New Tax System (Goods and Services Tax) Act 1999 subsection 188-20(1)
A New Tax System (Goods and Services Tax) Act 1999 paragraph 188-25(a)
Reasons for decision
Summary
GST will not be payable on the sale of the property because:
· the sale of the property to the extent of the residential portion will not be a supply made in the course or furtherance of an enterprise carried on by the suppliers,
· the sale of the property to the extent of the residential portion will be an input taxed sale of residential premises under subsection 40-65(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), and
· the partnership is not registered or required to be registered for GST.
Detailed reasoning
GST is payable by you on your taxable supplies.
You make a taxable supply where you meet the requirements of section 9-5 of the GST Act, which states:
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, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.
(*Denotes a term defined in section 195-1 of the GST Act)
Individual 1 and Individual 2's sale of the property, to the extent of the residential portion will be the mere realisation of a private asset. Hence, the sale of the property to the extent of the residential portion will not be a supply made in the course or furtherance of an enterprise carried on by the suppliers. Therefore, the requirement of paragraph 9-5(b) of the GST Act will not be met in respect of the sale of that portion of the property. Furthermore, the sale of the property to the extent of the residential portion will be an input taxed sale of residential premises under subsection 40-65(1) of the GST Act. As Individual 1 and Individual 2 do not meet all of the requirements of section 9-5 of the GST Act, the sale of the property to the extent of the residential portion will not be a taxable supply.
As the requirements of section 9-5 of the GST Act are not met, the sale of the property to the extent of the residential portion will not be a taxable supply.
The partnership will meet the requirements of paragraphs 9-5(a), 9-5(b) and 9-5(c) of the GST Act in respect of its sale of the commercial portion of the property. This is because:
· the partnership will supply the commercial portion of the property, by way of sale, for consideration,
· the partnership will supply the commercial portion of the property, by way of sale, in the course or furtherance of its leasing enterprise, and
· the sale of the property will be a supply connected with Australia, because the property is located in Australia.
The partnership is not registered for GST.
The sale of the property to the extent of the commercial portion is not input taxed under any provision in the GST Act.
Therefore, what remains to be determined is whether the partnership is required to be registered for GST and whether the sale of the property to the extent of the commercial portion will be GST-free.
Section 23-5 of the GST Act provides that you are required to be registered for GST if:
(a) you are carrying on an enterprise, and
(b) your GST turnover meets the registration turnover threshold.
The partnership is carrying on a property leasing enterprise. Therefore, the partnership will meet the requirement of paragraph 23-5(a) of the GST Act.
Our records show that the partnership's enterprise turnover is under $75,000 a year.
Subsection 188-10(1) of the GST Act explains when an entity's GST turnover meets a particular turnover threshold. It states:
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 met that your *projected GST turnover is below the turnover threshold; or
(b) your projected GST turnover is at or above the turnover threshold.
Subsection 188-15(1) of the GST Act sets out how to calculate current GST turnover. It provides that 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:
supplies that are input taxed; or
(a) supplies that are not for consideration (and are not taxable supplies under section 72-5 of the GST Act dealing with supplies to associates); or
(b) supplies that are not made in connection with an enterprise that you carry on.
Subsection 188-20(1) of the GST Act sets out how to calculate projected GST turnover. It provides that 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 of the GST Act dealing with supplies to associates); or
(c) supplies that are not made in connection with an enterprise that you carry on.
In accordance with paragraph 188-25(a) of the GST Act, a sale of a capital/investment asset is excluded from the calculation of projected GST turnover.
The partnership's enterprise income is under $75,000 a year.
In accordance with paragraph 32 of GSTR 2001/7, capital assets include tangible assets such as your factory that you retain to produce income.
The partnership holds the commercial part of the property as a capital asset as it retains it to produce leasing income. Therefore, the sale of the property to the extent of the commercial portion is excluded from the calculation of the partnership's projected GST turnover.
As the partnership's projected GST turnover is under $75,000, its GST turnover does not meet the registration turnover threshold. Therefore, the requirement of paragraph 23-5(b) of the GST Act is not met.
As the partnership does not meet all of the requirements of section 23-5 of the GST Act, it is not required to be registered for GST.
As the partnership is not registered or required to be registered for GST, it does not meet the requirement of paragraph 9-5(d) of the GST Act.
As the partnership does not meet all of the requirements of section 9-5 of the GST Act, the partnership will not make a taxable sale of the commercial portion of the property.
As the sale of the property will not be a taxable supply or taxable supplies, GST will not be payable on the sale of the property.