Edited version of your private ruling

Authorisation Number: 1012478506220

Ruling

Subject: Is the supply of properties a taxable supply

Question:

Is your supply of properties situated at the specified location a taxable supply of new residential premises?

Decision:

No.

Relevant facts and circumstances

You are the owners of properties situated at the specified address as joint tenants.

You are not currently registered for GST.

You purchased the land on which the properties are situated, subdivided the land and constructed the premises.

You did not claim any input tax credits during the construction of the premises.

You began renting the properties out.

Your intention at the time of purchasing the land and constructing the premises was to rent them out as a regular source of income.

You may need to sell these properties due to a downturn in your business.

You hold a portfolio of property investments, all of which you have held long-term.

The properties in question have never been held out for sale.

You have not sold any other properties to unrelated entities in the last decade.

After you sell the properties in question, you do not have any intention to sell any other properties.

Since completion of the premises, you have not made any improvements to them.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Subsection 9-20(1),

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 Section 23-15,

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 188-10(1)(b),

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

A New Tax System (Goods and Services Tax) Act 1999 Subsection 188-25(a).

Reasons for decision

Under section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you must pay the GST payable on any taxable supplies that you make.

Under section 9-5 of the GST Act, you make a taxable supply if:

(a) you make the supply for consideration,

(b) the supply is made in the course or furtherance of an enterprise you carry on,

(c) the supply is connected with Australia, and

(d) you are registered or required to be registered for GST.

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

In this case, of relevance for consideration is paragraph 9-5(d) of the GST Act. That is, whether your supply of the property will require you to be registered for GST.

Section 23-5 of the GST Act states that you are required to be registered if:

(a) you are carrying on an enterprise; and

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

Under section 23-15 of the GST Act, the GST registration turnover threshold is currently $75,000. You are carrying on an enterprise of leasing properties and will be required to register for GST if your GST turnover meets this turnover threshold.

Paragraph 188-10(1)(b) of the GST Act provides that an entity's GST turnover meets a particular threshold if the entity's current or projected GST turnover is at or above the turnover threshold. Section 188-20 of the GST Act states 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 eleven months. 

Subsection 188-25(a) of the GST Act, however, excludes certain supplies from your projected GST turnover calculations. It states that in working out your projected GST turnover, you disregard any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours.

Paragraphs 32 - 34 of Goods and Services Tax Ruling GSTR 2001/7 Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover discuss what constitutes capital assets.

'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.

33. Capital assets are 'radically different from assets which are turned over and bought and sold in the course of trading operations'. An asset which is acquired and used for resale in the course of carrying on an enterprise (for example, trading stock) is not a 'capital asset' for the purposes of paragraph 188-25(a).

34. 'Capital assets' are to be distinguished from 'revenue assets'. A 'revenue asset' is 'an asset whose realisation is inherent in, or incidental to, the carrying on of a business'.'

Paragraphs 247, 249 and 252 to 254 of Miscellaneous Tax 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 further discuss the differences between capital and revenue assets:

The subject matter of realisation

247. This badge of trade considers the form and the quantity of property acquired. If the property provides either an income or personal enjoyment to the owner it is more likely to be an investment than a trading asset.

The length of period of ownership

249. A trading asset is generally dealt with or traded within a short time after acquisition.

The frequency or number of similar transactions

251. The greater the frequency of similar transactions the greater the likelihood of trade.

Supplementary work on or in connection with the property realised

252. Improving property beyond preparing an asset for sale, to bring it into a more marketable condition and gain a better price suggests an element of trade.

The circumstances that were responsible for the realisation

253. Trade involves operations of a commercial character. As assets can be sold for reasons other than trade, the circumstances behind the sale need to be considered. For example, a quick resale may have occurred as a result of sudden financial difficulties.

Motive

254. If the activities on an objective assessment have the characteristics of trade, the person's motive is not relevant. It is relevant in those cases where the evidence is not conclusive. An intention to resell at the time of acquisition may be an indicator of the resale being an adventure or concern in the nature of trade.'

You are considering selling properties which you have held and rented for the specified amount of time. You do not have any history of building and selling properties within a short timeframe and have no intention to sell any other properties within your portfolio. You stated that since completion of the properties, you have not made any improvements to them. You also stated that you may need to sell these properties due to a downturn in your business. As your intention when buying the land and constructing the properties, was to rent them out, you did not claim any associated input tax credits. The combination of these facts indicates that the properties you are considering selling are capital assets. This is because their realisation is not inherent in, or incidental to, the carrying on of your enterprise.

As the properties are considered to be capital assets, they will be excluded from your projected turnover calculations. Provided that any other enterprise you carry on does not put your current or projected GST turnover beyond $75,000, you will not be required to be registered for GST.

As you are not registered or required to be registered for GST, you will not be making a taxable supply. Therefore, your supply of the properties will be input-taxed.