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Edited version of your private ruling
Authorisation Number: 1012591399747
Ruling
Subject: GST and sale of commercial property
Question
Will the sale of the commercial property located in Australia by the partnership be subject to the Goods and Services Tax (GST)?
Advice
No, the sale of the commercial property located in Australia by the partnership will not be subject to GST as the partnership will not be carrying on an enterprise under section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) at the time the property is sold.
Relevant facts
The partnership (you) own a commercial property located in Australia for ten years.
You advised that at the time of purchase, the property was not leased and there were no business activity conducted on the premises. You bought the property for investment purposes (that is renting the property). Currently you are not registered for GST.
You never claimed the GST paid on the purchase of the property. You rented the property for a certain period of time and you never charged or paid GST on the rental income. For several years the property has been empty and has no income generated since then.
You are considering selling the property. Currently you are preparing the property for painting before making the sale. You do not intend to carry on any major work or renovation on the commercial property before selling it.
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 Section 9-20
Reasons for decision
GST is payable on a taxable supply. You make a taxable supply under section 9-5 of the GST Act 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 for GST.
However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.
All of the above requirements must be satisfied for a supply to be a taxable supply under section 9-5 of the GST Act.
From the information received, you will satisfy paragraphs 9-5(a) and 9-5(c) of the GST Act when you sell the commercial property as you will make the supply for consideration and the supply will be connected with Australia as the property is located in Australia.
There is no provision in the GST Act that makes a supply of commercial property in Australia GST-free or input taxed.
We will now consider whether the sale of the commercial property will be made in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b) of the GST Act) and whether you will be required to be registered for GST as you are currently not registered for GST (paragraph 9-5(d) of the GST Act).
Paragraph 9-5(b) of the GST Act
The definition of an 'enterprise' in subsection 9-20(1) of the GST Act includes (amongst other things) an activity or series of activities done in the form of an adventure or concern in the nature of trade.
The meaning of 'enterprise' is considered in Miscellaneous Taxation Ruling MT 2006/1: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number, and Goods and Services Tax Determination GSTD 2006/6: does MT2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the GST Act? The principles outlined in the ruling and determination have been applied in your circumstances.
Paragraph 13 of GSTD 2006/6 explains that an adventure or concern in the nature of trade includes a commercial activity that does not amount to a business but which has the characteristics of a business deal. However, the sale of the family home, a private car or other private assets is not, without other factors being present, an adventure or concern in the nature of trade.
Paragraphs 262 to 302 of MT 2006/1 specifically consider isolated transactions and sales of real property. Paragraph 263 of MT 2006/1 states that the issue to be decided is whether the activities are an enterprise, in that they are of a revenue nature, as opposed to the mere realisation of a capital asset.
In determining whether activities relating to isolated transactions are an enterprise or the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each case. No single factor will be determinative. Rather it will be a combination of factors that will lead to a conclusion as to the character of the activities.
Paragraphs 258 to 260 of MT 2006/1 provide that certain type of assets, such as rental properties, business plant and machinery, the family home, family cars and other assets are considered as investment assets. These assets are purchased with the intention of being held for a reasonable period of time, as income-producing assets or for the pleasure or enjoyment of the person. The mere disposal of these investment and private assets does not amount to trade. Assets can change their character from investment to trade, however these assets cannot be held at the same time for both purposes.
From the facts given, you are not carrying on any business activity from the commercial property. In this instance, we consider that the sale of the commercial property will be the mere disposal of an investment asset which does not amount to trade. Accordingly, you will not be selling the commercial property in the course of an enterprise. Paragraph 9-5(b) of the GST Act is not satisfied.
Paragraph 9-5(d) of the GST Act
Under section 23-5 of the GST Act, you are required to be registered if:
· you are carrying on an enterprise, and
· your GST turnover meets the registration turnover threshold (currently $75,000).
As determined above, the sale of the commercial property will not amount to an enterprise for GST purposes and therefore you will not be required to be registered for GST. Accordingly, section 23-5 of the GST Act will not apply.
As you are not registered, nor required to be registered for GST, the requirement in paragraph 9-5(d) of the GST Act will not be satisfied.
Summary
As all the requirements in section 9-5 of the GST Act will not be satisfied, your sale of the commercial property will not be a taxable supply and therefore will not be subject to GST