Edited version of your private ruling

Authorisation Number: 1012480487425

Ruling

Subject: Goods and services tax (GST) and sale of property

Question

Will GST be payable on the sale of your property?

Answer

No.

Relevant facts and circumstances

The partnership (you) is not registered for GST.

You registered for GST on a certain date and cancelled your GST registration on a certain date.

You own a property located in Australia.

There is no residence on the property.

You purchased the property many years ago. The property was zoned rural at that time.

You operated a farming business on the property from that date.

A number of years ago, the operation of the farming business was transferred from you to your family company (the company). The company is registered for GST.

The company pays you a certain amount per year in rent for the property.

You lease various parts of the property to market gardeners (who are not related to you). The rent you receive from the market gardeners for the property is a certain amount of money.

You earn less than $75,000 a year in rent from the property.

You are not leasing out property elsewhere.

You will sell the property to a property developer (the developer).

A number of years ago, you granted the developer an option to purchase the property.

n a certain date, the property was rezoned residential.

On a certain date, you granted the developer a further option to purchase the property.

The agreement to sell the property does not state that the sale of the property is the supply of a going concern.

From the time you purchased the property to now the entire property has been used solely for farming/primary production.

Primary production activities will continue on the property until settlement occurs.

You do not intend to carry on any business or leasing enterprise elsewhere in the month of settlement of the property in question or the following 11 months.

You will not subdivide the property.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act subsection 7-1(1)

A New Tax System (Goods and Services Tax) Act section 9-5

A New Tax System (Goods and Services Tax) Act section 9-20

A New Tax System (Goods and Services Tax) Act section 9-40

A New Tax System (Goods and Services Tax) Act section 23-5

A New Tax System (Goods and Services Tax) Act paragraph 23-15(1)(b)

A New Tax System (Goods and Services Tax) Act subsection 188-10(1)

A New Tax System (Goods and Services Tax) Act subsection 188-20(1)

A New Tax System (Goods and Services Tax) Act section 188-25

Reasons for decision

Summary

GST will not be payable on the sale of your property because you will not be registered or required to be registered at the time of sale.

Detailed reasoning

GST is payable by you on your taxable supplies.

You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states:

You make a taxable supply if:

you make the supply for *consideration; and

the supply is made in the course or furtherance of an *enterprise that

you *carry on; and

the supply is *connected with Australia; and

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)

You will satisfy the requirements of paragraphs 9-5(a), 9-5(b) and 9-5(c) of the GST Act when you sell the property. This is because:

you will supply the property for consideration

the supply will be made in the course or furtherance of your leasing enterprise, and

the supply will be connected with Australia as the property is located in Australia.

There are no provisions in the GST Act under which your sale of the property will be GST-free or input taxed.

You are not registered for GST.

It remains to be considered whether you will be required to be registered for GST when you sell the property.

You are required to be registered for GST when you satisfy the requirements of section 23-5 of the GST Act which 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.

In accordance with paragraph 23-15(1)(b) of the GST Act, the registration turnover threshold is $75,000.

You are carrying on a leasing enterprise. Therefore, you satisfy the requirement of paragraph 23-5(a) of the GST Act.

Subsection 188-10(1) of the GST Act states:

(1) You have a GST turnover that meets a particular 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.

Subsection 188-20(1) of the GST Act sets out how to determine projected GST turnover. It states: 

(1) 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 excludes the following supplies from the calculation of projected GST turnover:

(a) a supply you make by way of transfer of ownership of a capital asset of

yours

(b) a supply made by you solely as a consequence of ceasing to carry on an

enterprise.

Goods and services tax ruling GSTR 2001/7 provides guidelines on determining GST turnover.

Paragraphs 31 to 33 of GSTR 2001/7 discuss capital assets. They 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.

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).

In accordance with paragraph 41 of GSTR 2001/7, a supply is made 'solely as a consequence of ceasing to carry on an enterprise' where the supply is made only as a result of the ceasing of an enterprise.

You hold the property in question as part of the structure of your leasing enterprise. You retain it to earn leasing income. You will not the sell the property in the course of a property trading operation. The character of this asset will not change between now and the time you sell it.

Therefore, your sale of the property will be a supply you make by way of transfer of ownership of a capital asset of yours.

Furthermore, your sale of the property will be a supply you make solely as a consequence of ceasing to carry on your leasing enterprise as the sale will be made only as a result of the ceasing of your leasing enterprise.

Hence, the proceeds from the sale of the property will not be included in your projected GST turnover.

The only amount that will be included in the calculation of projected GST turnover at the time of settlement will be the total rent you receive for the month of settlement. This will be less than $75,000.

Hence, at the time of settlement, your projected GST turnover will be under $75,000.

Therefore, your GST turnover will not meet the registration turnover threshold. Hence, you will not satisfy the requirement of paragraph 23-5(b) of the GST Act. As you will not satisfy all of the requirements of section 23-5 of the GST Act, you will not be required to be registered for GST when you sell the property.

As you are not registered for GST and will not be required to be registered for GST when you sell the property, you will not satisfy the requirement of paragraph 9-5(d) of the GST Act.

As you will not satisfy all of the requirements of section 9-5 of the GST Act, you will not make a taxable supply when you sell the property.

Therefore, GST will not be payable on the sale of your property.