Edited version of private advice

Authorisation Number: 1012682646188

Ruling

Subject: GST and requirement to register and carrying on an enterprise

Question 1

Will you be required to be registered for goods and services tax (GST) pursuant to section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in respect of the sale of the land?

Answer

No, you are not required to be registered for GST.

Relevant facts and circumstances

• A unit trust was created under a deed of settlement.

• You are the Trustee of the unit trust

• The family and related entities are predominantly in the business of providing certain services, which the family operates through a business trading name and another entity.

• You hold a parcel of land (Land), which you acquired under a contract of sale pre 2000. The Land was initially acquired by you in order to build a showroom for the family's business. The construction of the showroom did not occur. The property has always been reflected in your accounts as an investment property.

• You applied for an Australian Business Number (ABN) and registered for GST, however you cancelled your GST registration. During the period of GST registration, you lodged quarterly activity statements (ASs). The labels of the lodged ASs however only disclosed nil amounts.

• The Land has being used by truck drivers to park their trucks on a casual ad hoc basis for free. Some time ago, you came to an informal arrangement with these truck drivers permitting the drivers to use the Land for ad hoc parking in return for a small fee. The income derived from the use of the car park has been insignificant. Further, the Land has not been used to derive any income since last year.

• You have disclosed your main business activity within your tax returns as being "renting or leasing of non-residential buildings as owner or leaseholder". You have never actively marketed the Land as a car park.

• Sometime in the 20XX calendar year, you decided to realise the capital growth on the Land in the most advantageous way possible. In order to do this, you engaged an external consultant to apply for a permit to develop the Land. The consultant managed the entire permit application process. A permit for the construction of a large number of apartments on the Land was approved. In your effort to realise the capital growth on the Land in the most advantageous way possible, you did not seek to subdivide, rezone or otherwise alter the Land in anyway and no further permits have been obtained. All costs incurred in applying for the permit have been capitalised to the cost of the Land. You and the family have no background or prior experience in property development.

• You propose to sell the Land together with the permit.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) 1999

Section 7-1

Section 9-5

Section 9-20

Section 23-5

Section 188-5

Section 188-10

Section 188-20

Section 188-25

Reasons for decision

Summary

You are not required to be registered for GST as your GST turnover does not meet the registration turnover threshold.

Detailed reasoning

Section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you are required to be registered for GST if:

• you are carrying on an enterprise, and

• your GST turnover meets the registration turnover threshold.

The first requirement is whether you are carrying on an enterprise. The meaning of enterprise is provided in section 9-20 of the GST Act. Paragraph 9-20(1)(c) of the GST Act provides that an enterprise includes 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.

A licence is generally a right to occupy a property where no formal lease agreement is in place. In addition, if this grant of a licence is done on a regular or continuous basis, it will be an enterprise for GST purposes.

You have been using the land as a car park for trucks on an ad hoc basis for some time. No formal lease agreement has been in place. This represents a licence or right to occupy property and therefore, you are carrying on an enterprise for GST purposes.

The second requirement is whether your GST turnover meets the registration turnover threshold. The current registration turnover threshold is $75,000.

Division 188 of the GST Act provides the meaning of GST turnover. Section 188-10 of the GST Act provides that your GST turnover meets the 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.

Section 188-15 of the GST Act provides that your current GST turnover is the value of all the supplies that you have made, or are likely to make, during the 12 months ending at the end of that month. However, input taxed supplies and supplies that are not made in connection with an enterprise that you carry on, are specifically excluded from the calculation of your current GST turnover.

The supply of the land for car parking by way of lease, hire or licence is included in calculating your current GST turnover. Based on the information provided, the total fees received from your car parking activities are below the current GST registration turnover threshold of $75,000.

Section 188-10 of the GST Act provides that where your current GST turnover does not exceed the threshold, it is necessary to determine whether your projected GST turnover will also meet the registration turnover threshold. If it does, then you will be required to be registered for GST.

Section 188-20 of the GST Act defines projected GST turnover as the value of all the supplies that you have made, or are likely to make, during that month and the next 11 months. Supplies that are input taxed and supplies that are not made in connection with an enterprise you carry on are also excluded in calculating your projected GST turnover. 

In addition, section 188-25 of the GST Act specifically excludes from the calculation of projected GST turnover, any supply made by way of the transfer of capital assets. A capital asset is generally the profit-yielding subject of an enterprise. It is considered that the land being rented out as a car park is a capital asset of your enterprise. Accordingly, in calculating your projected GST turnover, you may disregard the value of the supply of the land.

You have stated that you do not make any other supplies in relation to the property. Therefore, your projected GST turnover will be below the registration turnover threshold.

Further, just obtaining a permit to build apartments on the land is not considered to be significant commercial activity to make it an activity in the form of an adventure or concern in the nature of trade. Your activities do not amount to an enterprise of property development but a mere realisation of a capital asset in the most advantages way.

As your projected GST turnover is below the registration turnover threshold, you are not required to be registered for GST. Consequently, all of the requirements of a taxable supply are not satisfied and the sale of the land will be a mere realisation of a capital asset and not subject to GST.