Edited version of your written advice

Authorisation Number: 1012835563016

Date of advice: 8 July 2015

Ruling

Subject: Goods and services tax and supply of land

Question

Can you issue a written notice, under paragraph 105-5(3)(a) of the A New Tax System (Goods and Services Tax) Act 1999, stating that the supply of vacant land at specified address would not be a taxable supply if you were to make it?

Answer

Yes.

Relevant facts and circumstances

You are not registered for GST.

You bought vacant land at specified address. You intended to construct a new store which was to be leased to and operated by a related entity. Part of the building could also be used by you to carry on your enterprise. Within 18 months of acquisition, preliminary drawings for a particular store and other outlets were prepared. However, you did not proceed to construct the store. The land remained vacant. You have no history of being in property development.

You changed your mind about development in a specified year and decided to sell the vacant land. Furthermore, you did not consider subdividing the land. You attempted to sell the property from specified year to specified year. You were not successful in selling the property.

In addition, you attempted to enter into an agreement with a specified entity on specified date. The specified schedule of the agreement states that the project comprises the most appropriate residential property development on the Land for the commercial benefit of the Joint Venture but including without limitation the obtaining of the appropriate zoning and approvals to subdivide the Land for the purposes of the Joint Venture and to carry out the Project Development Responsibilities. The agreement did not proceed as the specified entity refused to accept its terms and conditions.

You have stated that the proposed agreement with the specified entity was not a joint venture agreement but a sale agreement. Furthermore, you advised that at no point was the development undertaken to be sold off to other parties.

The specified entity took possession of the property in a specified year because the mortgage could not be paid.

It has not been sold. The specified entity is attempting to sell the land. You expect the land will sell for a specified sum.

You are not involved in any other enterprise.

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 subsection 188-10(1)

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

Reasons for decision

Under section 9-5, 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 the indirect tax zone; 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.

A supply of vacant land by you would not be GST-free nor input taxed.

In order for any supply, by you, of vacant land to be a taxable supply, you must satisfy all four of the conditions mentioned in a) to d) above. If you fail one of the four conditions then the supply would not be a taxable supply.

You need to be registered or required to be registered for GST to satisfy condition d). In view of the fact that you are not registered, we now turn to consider whether you are required to be registered for GST.

Requirement to be registered

Section 23-5 of the 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, which is currently $75,000 for entities other than non-profit entities.

We need to determine whether your GST turnover meets the registration turnover threshold.

Registration turnover threshold

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

• your current GST turnover is at or above the registration turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the registration turnover threshold, or

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

The registration turnover threshold applicable to you is $75,000.

Your current GST turnover at a time during a particular month is the sum of the values of all the supplies in a particular month plus the previous 11 months. Your projected GST turnover is the sum of the values of all supplies made in a particular month plus the next 11 months.

The following are disregarded when working out your current and projected GST turnover:

• supplies that are input taxed

• supplies that are not for consideration (and are not taxable supplies under section 72-5 of the GST Act)

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

• supplies that are not connected with Australia.

The above exclusions do not apply to your circumstances.

Capital asset

Section 188-25 of the GST Act provides that when calculating your projected GST turnover, you do not include any supplies made, or likely to be made by you:

• by way of transfer of ownership of a capital asset, or

• solely as a consequence of ceasing an enterprise or substantially and permanently reducing the size or scale of your enterprise.

The meaning of 'capital asset' is discussed in paragraphs 31 to 36 of Goods and Services Tax Ruling GSTR 2001/7 Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover (GSTR 2001/7).

The GST Act does not define the term capital assets. However, GSTR 2001/7 explains that generally, the term capital assets refers to those assets that make up the profit yielding subject of an enterprise. They are often referred to as structural assets. They may be described as the business entity, structure or organisation set up or established for the earning of profits.

Capital assets are to be distinguished from revenue assets. A revenue asset is an asset whose realisation is inherent in, or incidental to, the carrying on of a business. If the means by which you derive income is through the disposal of an asset, the asset will be of a revenue nature rather than a capital asset even if such a disposal is an occasional or one-off transaction. Therefore, the character of an asset must be determined at the time of expected supply.

In this case, you held the land in order to construct a new store which was to be leased to and operated by a related entity. Part of the building would also be used by you to carry on your enterprise. Furthermore, you advised that at no point was the development undertaken to be sold off to other parties.

The land is a capital asset. It follows that the disposal of the land would be excluded from the calculation of your projected GST turnover.

Your projected GST turnover is nil. Your GST turnover does not meet the $75,000 registration turnover threshold. 

Therefore, you are not required to be registered under section 23-5 of the GST Act. 

Accordingly, you would not meet one of the requirements (ie section 9-5(d) of the GST Act) for a taxable supply if you were to sell the vacant land. The supply of vacant land at the specified address would not be a taxable supply if you were to make it.

Consequently, you can issue a written notice, under paragraph 105-5(3)(a) of the GST Act, stating that the supply of vacant land at the specified address would not be a taxable supply if you were to make it.