| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1012875911634
Date of advice: 14 September 2015
Ruling
Subject: GST payable on the sale of real property
Question
Is GST payable on the sale of your property located in Australia?
Answer
No.
Relevant facts and circumstances
You are not registered for GST.
You are carrying on a leasing enterprise, leasing residential townhouses in Australia.
You originally purchased the property on which the townhouses are erected in 20XX. The land at this time had erected on it an old, dilapidated house which was rented by you sporadically for short periods without any formal rental agreements.
You demolished the original building and constructed new townhouses.
You moved into one of the townhouses when construction was completed. The other townhouses were leased utilising a real estate agent.
You now need to sell one of the townhouses and want to know whether the sale will be a taxable supply subject to GST. The anticipated sale price will be in excess of $75,000.
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 9-40
A New Tax System (Goods and Services Tax) Act 1999 Section 23-5
A New Tax System (Goods and Services Tax) Act 1999 Division 188
Reasons for decision
In this reasoning, please note:
• unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)
• all terms marked by an asterisk are defined terms in the GST Act
• all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on ato.gov.au
You must pay the GST payable on any taxable supply that you make.
A supply will be a taxable supply where the requirements of section 9-5 are satisfied.
Section 9-5 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.
Based on the facts provided, you satisfy the requirements of paragraphs 9-5(a), 9-5(b) and 9-5(c) as the supply of your townhouse in Australia is for consideration in the course of your leasing enterprise.
We need to consider whether you are required to be registered for GST and therefore meet the last test of a taxable supply in paragraph 9-5(d).
Are you required to be registered for GST?
Section 23-5 provides that 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 $75,000).
Section 188-10 provides that your GST turnover meets the registration turnover threshold if:
a) your current GST turnover is at or above $75,000 and the Commissioner is not satisfied that your projected GST turnover is below $75,000, or
b) your projected GST turnover is at or above $75,000.
Your current GST turnover is the sum of the values of all supplies made 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.
In calculating current GST turnover and projected GST turnover, you exclude (amongst other things) supplies that are input taxed including residential rent.
Furthermore, in working out your projected GST turnover, paragraph 188-25(a) requires that you disregard any supply made or are likely to be made, by you by way of transfer of ownership of a capital asset of yours.
As you are not registered for GST because your current GST turnover is below $75,000, the relevant issue is your projected GST turnover.
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) discusses the meaning of a 'capital asset' at paragraphs 31 to 36.
Capital assets are often referred to as structural assets used by an entity to produce an income.
Capital assets are to be distinguished from revenue assets. If the means by which you derive income is through the disposal of assets, those assets will be revenue or trading assets rather than capital assets.
The townhouse has been used to generate rental income as part of your leasing enterprise.
Given the facts in this case, we consider the sale of the townhouse constitutes the transfer of a capital asset for the purposes of section 188-25 and its sale proceeds will be disregarded when calculating your projected GST turnover.
As the proceeds from the sale of your townhouse is disregarded from the calculation of your GST turnover, you are not required to register for GST.
Therefore, you are not making a taxable supply under section 9-5 when you sell the townhouse and there will be no GST on the sale.