Edited version of your written advice

Authorisation Number: 1012697963916

Ruling

Subject: GST and sale of commercial property

Question 1

When does a commercial property not incur GST, when sold as vacant possession?

Answer

Generally the supply of a commercial property, when sold as vacant possession, does not incur GST if it is not a taxable supply.

Question 2

Even though the vendor was not registered for GST, was the vendor required to do so in relation to the sale of a commercial property?

Answer

According to the facts available the vendor is not required to be registered in relation to the sale of the commercial property.

Question 3

Based on the contract of sale stating "that the price includes GST (if any), unless the words "plus GST" appear in the box provided" are you eligible to claim input tax credits on your acquisition?

Answer

No you are not eligible to claim input tax credits on your acquisition.

Question 4

If you are eligible to claim the GST credits on the acquisition of the commercial property, what is the process if the vendor refuses to provide a tax invoice?

Answer

If an entity is entitled to input tax credits and the supplier has not provided a tax invoice the Commissioner will expect the recipient to make a reasonable attempt to request a valid tax invoice from the supplier.

If the supplier still does not issue a tax invoice the recipient of the supply can make a request to the Commissioner to treat a particular document as a tax invoice.

Practice Statement Law Administration PS LA 2004/11 provides guidance on what factors the Commissioner will consider when exercising his discretion to treat a document as a tax invoice. PS LA 2004/11 provides that the Commissioner, among other things, will consider whether it is reasonable to conclude from the available evidence that there is a creditable acquisition has been made by the recipient of the supply.

Relevant facts and circumstances

You, the Trustee for the xxx Unit Trust, are registered for the goods and services tax (GST).

You purchased a commercial property (vacant shop front) and the vendor was running their enterprise from the property. The vendor is not registered for GST

Consideration provided for the acquisition.

Your accountant advised you that, even though the vendor is not registered for the GST they must register for a once only transaction where the sale was that of a commercial property and the vendor should provide you with a tax invoice.

The information you made available to us indicates that the purchaser, their real estate and conveyancing agents believe that the supply is not subject to GST.

Your Lawyers informed that:

• the vendor is not and was not at the relevant time registered for GST;

• the vendor claims that they are not required to be registered and that the supply of the property is not taxable;

• the trustee of the xxx Unit Trust is of the belief that the vendor may be required to be registered for GST;

• the dispute between the parties relates to whether the vendor is required to be registered for GST.

You have on numerous occasions asked for a tax invoice from the vendor and have not received one.

The Particulars of Sale refers to General Condition YY which mentions that the price includes GST (if any) unless the words 'plus GST' appear in the box provided. The box was left blank.

The property was not sold as a going concern and neither was it subject to the margin scheme.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 sections 9-5; 11-5; 11-20; 23-5 and 188-25.

Reasons for decision

Question 1

Summary

Generally the supply of a commercial property, when sold as vacant possession, does not incur GST if it is not a taxable supply.

Detailed reasoning

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that an entity makes a taxable supply if the supply is for consideration, the supply is made in the course or furtherance of an enterprise that the entity carries on, the supply is connected with Australia and the entity is 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.

An entity will make a taxable supply where all the conditions in section 9-5 of the GST Act are satisfied.

This means that where a commercial property is sold as vacant possession it will not be taxable if any one of the conditions in section 9-5 of the GST Act is not satisfied.

Question 2

Summary

According to the facts available the vendor is not required to be registered in relation to the sale of the commercial property.

Detailed reasoning

Under section 23-5 of the GST Act an entity is required to be registered for GST if it is carrying on an enterprise and its GST turnover meets the registration turnover threshold.

Currently the registration turnover threshold is $75,000 ($150.000 for a non-profit body).

Goods and Services Tax Ruling (GSTR 2001/7) provides the meaning of GST turnover, including the effect of section 188-25 of the GST Act on projected GST turnover. Paragraph 29 of GSTR 2001/7 has been reproduced below:

Supplies to be disregarded under section 188-25

29. Section 188-25 modifies the effect of section 188-20 by excluding certain supplies made when working out your projected GST turnover. Section 188-25 requires you to disregard the following when calculating your projected GST turnover:

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

(b) 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.

In selling the property, the vendor disposed of a capital asset. Even though a supply may satisfy the conditions under both paragraph 188-25(a) and 188-25(b) of the GST Act, those proceeds are excluded only once when calculating projected GST turnover.

As stated above supplies considered under section 188-25 are disregarded when calculating an entity's projected GST turnover.

Therefore, in this case the vendor can disregard the proceeds from the sale of their capital asset (the commercial property) in calculating their projected GST turnover. Where the vendor has calculated their projected GST turnover on a reasonable basis to be below the registration turnover threshold, their GST turnover does not meet that particular turnover threshold and they are not required to register for GST.

See GSTR 2001/7 for further information. This ruling is available on the Tax Office website at www.ato.gov.au.

Question 3

Summary

No you are not eligible to claim input tax credits on your acquisition.

Detailed reasoning

Conditions GC.1, GC.2 and GC.3 of the contract of sale have been reproduced below:

GC.1 The purchaser does not have to pay the vendor any GST payable by the vendor in respect of a taxable supply made under this contract in addition to the price unless the particulars of sale specify that the price is 'plus GST'...

GC.2 The purchaser must pay to the vendor any GST payable by the vendor in respect of a taxable supply made under this contract in addition to the price if the particulars of sale specify that the price is 'plus GST'.

GC.3 If the purchaser is liable to pay GST, the purchaser is not required to make payment until provided with a tax invoice, unless the margin scheme applies.

In effect condition GC.1 indicates that if a supply made under the contract is a taxable supply the recipient does not have to pay the vendor any GST payable by the vendor unless the particulars of sale specify that the price is 'plus GST'.

You informed us that the box provided under the Particulars of Sale was left blank and does not contain the words 'plus GST'.

Further, condition GC.2 provides that the purchaser must pay to the vendor any GST payable under this contract in addition to the price if the particulars of sale specify that the price is 'plus GST'.

The wording of conditions GC.1 and GC.2 refers to a 'taxable supply made under this contract'. In other words when read in conjunction, conditions GC.1 and GC.2 indicate that the price will include an amount of GST if the supply is taxable.

Conditions GC.1 and GC.2 clearly refer to the GST payable by the vendor in respect to a taxable supply made by the vendor. Those conditions do not seem to relate to a non-taxable supply.

Moreover, condition GC.3 makes it clear that if the purchaser is liable to pay GST; the purchaser is not required to make payment until provided with a tax Invoice. General condition GC.3 was available under the contract of sale and a tax invoice could have been requested before payment was made.

As stated above, see question 2, any supply made or likely to be made by way of transfer of ownership of a capital asset or any supply made or likely to be made solely as a consequence of ceasing to carry on an enterprise or substantially and permanently reducing the size or scale of an enterprise is disregarded in the calculation of an entity's projected turnover.

Consequently a vendor that is not registered for GST will not be required to be registered where section 188-25 of the GST Act applies to their circumstances.

Section 11-20 of the GST Act provides that an entity is entitled to an input tax credit for any creditable acquisition that it makes.

Section 11-5 of the GST Act provides that an entity makes a creditable acquisition if it acquires something for a creditable purpose, the supply to the entity is taxable, the entity provides or is liable to provide consideration for the supply and the entity is registered or required to be registered for GST.

A vendor that is not registered or required to be registered cannot make a taxable supply. Consequently you did make a creditable acquisition and thus you are not entitled to input tax credits.

Question 4

Summary

See answer below

Detailed reasoning

If an entity is entitled to input tax credits and the supplier has not provided a tax invoice the Commissioner will expect the recipient to make a reasonable attempt to request a valid tax invoice from the supplier.

If the supplier still does not issue a tax invoice the recipient of the supply can ask the Commissioner to treat as a tax invoice a particular document.

Practice Statement Law Administration PS LA 2004/11 provides guidance on what factors the Commissioner will consider when exercising his discretion to treat a document as a tax invoice. PS LA 2004/11 provides that the Commissioner, among other things, will consider whether it is reasonable to conclude from the available evidence that there is a creditable acquisition has been made by the recipient of the supply.