Edited version of private advice

Authorisation Number: 1012614066665

Ruling

Subject: GST and sale of commercial property

Question

In order to sell your commercial property with the existing lease, do you have to re-register for goods and services tax (GST)?

Decision

No, you do not have to re-register for GST as the sale of your commercial property will not be subject to GST.

Relevant facts and circumstances

• You are the trustee for a self-managed superannuation fund. You were previously registered for GST. Later on you cancelled your registration.

• You purchased a commercial property a few years ago for a GST inclusive price. As you were registered for GST at the time of purchase of the property, the purchase of this property was a creditable acquisition for GST purposes and you claimed the relevant input tax credits.

• After purchase the property was vacant for a long time. As it was costing you money to lodge quarterly business activity statements (BAS), you decided to deregister for GST.

• Finally you found a tenant at $X per month and the property is still tenanted under a lease.

• As you are not getting a sufficient return for your investment in the property, you have decided to sell the property with the existing lease. So far you have not listed the property for sale.

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

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

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

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

Reasons for the decision

Taxable supply

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

In order to make a taxable supply, you have to satisfy all the requirements of section 9-5 of the GST Act.

When you sell your commercial property, you will make a supply for consideration and satisfy paragraph 9-5(a) of the GST Act.

Paragraph 9-20(1)(c) of the GST Act provides that an enterprise is an activity or series of activities done on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.

Paragraph 9-20(1)(da) of the GST Act provides that an enterprise is an activity or series of activities done by a trustee of a complying superannuation fund.

We consider that when you lease your commercial property under a lease agreement, you carry on an enterprise for GST purposes. Therefore, when you sell your commercial property with the existing lease, you will make the supply of your property in the course or furtherance of your enterprise of leasing the property and satisfy paragraph 9-5(b) of the GST Act.

Your supply of the property will be connected with Australia as it is located in Australia and paragraph 9-5(c) will be satisfied.

You are currently not registered for GST. It is necessary to ascertain whether you will be required to be registered for GST, when you sell your commercial property.

Required to be registered

You receive a monthly rental of $X for the property.

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

• you carry on an enterprise; and

• your GST turnover meets the registration turnover threshold.

At present, the registration turnover threshold is $75,000.

Subsection 188-10(1) of the GST Act provides that you have a GST turnover that meets a particular turnover threshold if:

• 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

• your projected GST turnover is at or above the turnover threshold.

Current GST turnover

Subsection 188-15(1) of the GST Act 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;

• supplies that are not for consideration; or

• supplies that are not made in connection with an enterprise that you carry on.

Projected annual turnover

Subsection 188-20(1) of the GST Act provides that your projected turnover at a time during a particular month is the sum of the values of all supplies that you have made or are likely to make during that month and the next 11 months other than:

• supplies that are input taxed;

• supplies that are not for consideration; or

• supplies that are not made in connection with an enterprise that you carry on.

Section 188-25 of the GST Act provides that in working out your projected GST turnover, disregard:

• any supply made or likely to be made, by way of transfer of ownership of a capital asset of yours; and

• 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.

Therefore, in working out your projected GST turnover, the supply to be made by way of sale of your commercial property will be disregarded.

As your current and projected GST turnovers will be below the GST registration turnover threshold at the time of the proposed sale of your commercial property, you will not be required to be registered. Therefore, the requirements of paragraph 9-5(d) of the GST Act will not be satisfied and the sale of your commercial property will not be a taxable supply.

Accordingly, the sale of your commercial property as it is will not be subject to GST. There is no need for you to re-register for GST in order to sell the property

Increasing adjustment for cessation of registration

Subsection 138-5(1) of the GST Act refers to adjustments for cessation of registration and provides that you have an increasing adjustment if:

• your registration is cancelled; and

• immediately before the cancellation takes effect, your assets include anything in respect of which you were or are entitled to an input tax credit.

Therefore, your deregistration for GST after the purchase of your commercial property could lead to an increasing adjustment. An increasing adjustment increases your net amount of GST payable.

Time limit on recovery by the Commissioner

Subdivision 105-C of the Taxation Administration Act 1953 (TAA) refers to limits on credits, refunds and recovering amounts.

Subsection 105-50(1) of the TAA provides that any unpaid net amount, net fuel amount or amount of indirect tax together with any relevant general interest charge under this Act ceases to be payable four years after it became payable by you.

Subsection 105-50(3) of the TAA provides that however, subsection (1) does not apply to an amount if:

• within the four years the Commissioner has required payment of the amount by giving a notice to you or

• the Commissioner is satisfied that:

(i) the payment of the amount was avoided by fraud or evaded; or

(ii) .....