Edited version of private advice

Authorisation Number: 1012634928575

Subject: GST and sale of property

Question

Is the sale of your property subject to goods and services tax (GST)?

Answer

No, the sale of your property is not subject to GST as the sale is not a taxable supply under section 9-5 the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Relevant facts and circumstances

Several years ago, you purchased a vacant land (the property) located in Australia.

At the time of purchase, the property was used as a farm. Your intention was to hold the property as a long-term investment.

You registered for GST and claimed input tax credit for your acquisition of the property.

Since your purchase, you have been leasing the property to another entity for no fee.

There were offers from developers to purchase the property but negotiations fell through because you and the potential purchasers could not agree on whether the sale should be subject to GST.

You cancelled your GST registration and repaid the input tax credit that you previously claimed for the acquisition of the property.

You are now considering selling the property.

You also own a residential property (the other property) which you have been leasing.

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 23-5,

A New Tax System (Goods and Services Tax) Act 1999 section 188-15,

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

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

Reasons for decision

GST is payable on a 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.

You advised that you have leased the property since purchase and are currently leasing the other property. Therefore, you are carrying on a leasing enterprise.

You will supply the property for consideration and in the course of carrying on your enterprise. The supply is connected with Australia as the property is in Australia. The requirements in paragraphs 9-5(a) to 9-5(c) of the GST Act are satisfied.

You are not registered for GST; however, for the purpose of paragraph 9-5(d) of the GST Act, it must be determined whether you are required to be registered when you sell the property.

Required to be registered

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.

You are carrying on a leasing enterprise; as such, paragraph 23-5(a) of the GST Act is satisfied.

For the purpose of paragraph 23-5(b) of the GST Act, subsection 188-10(1) provides that your GST turnover meets the registration 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.

Currently, the registration turnover threshold is $75,000 ($150,000 for non-profit entities).

Current GST turnover

You advised that you lease the property for no consideration. The lease of the other property, is an input taxed supply under subsection 40-35(1) of the GST Act; and is not included in working out your current and projected GST turnover in accordance with paragraphs 188-15(1)(a) and

188-20(1)(a). Therefore, your current GST turnover is below the registration turnover threshold.

Projected GST turnover

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, not including input taxed supplies.

Paragraph 188-25(a) of the GST Act provides that any supply made, or likely to be made by you, by way of transfer of ownership of a capital asset of yours is disregarded in calculating your projected GST turnover.

As the property is your capital asset, its sale is disregarded in calculating your projected GST turnover. Therefore, your projected GST turnover is below the registration turnover threshold.

Conclusion

Your GST turnover does not meet the registration turnover threshold despite the sale of the property. As such, you are not required to register for GST when you sell the property.

The requirement in paragraph 9-5(d) of the GST Act is not satisfied as you are not registered or required to be registered for GST. Therefore, the sale of the property is not a taxable supply and is not subject to GST.

Additional information

Note that an entity's current and projected GST turnover is calculated at any time during a particular month. You must continually monitor your GST turnover to determine if you are required to be registered for GST.

If, on or before settlement of the contract for sale of the property, your GST turnover meets the registration turnover threshold (because you make supplies that increase your GST turnover), you will be required to be registered for GST and may be liable for GST on the sale.