Edited version of your written advice

Authorisation Number: 1013073416493

Date of advice: 23 August 2016

Ruling

Subject: GST and sale of real property

Question 1

Is the Partnership required to be registered for GST under section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer 1

No. The Partnership is not required to be registered for GST.

Question 2

Is the sale of the commercial premises (the Property) a taxable supply under section 9-5 of the GST Act?

Answer 2

No. The sale of the Property is not a taxable supply because not all the requirements of section 9-5 of the GST Act are satisfied.

Relevant facts and circumstances

The Partnership was formed when the Partnership purchased the commercial premises (the Property).

The Property is the only asset of the Partnership.

Since the acquisition, the Property has been continuously leased to members of the Partnership who currently conduct or previously conducted their own businesses from the Property.

The Partnership does not carry on any other activities.

Both the tenants are registered for GST.

The Partnership has never been registered for GST. The GST turnover of the partnership has always been less that the registration turnover threshold.

Currently, the total annual rent is less than $75,000. This is a market value rent.

The Property is currently on the market and is expected that the sale price will exceed $75,000.

The Partnership will cease following the sale of the Property.

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 9-20.

A New Tax System (Goods and Services Tax) Act 1999 section 23-5.

A New Tax System (Goods and Services Tax) Act 1999 section 23-10.

A New Tax System (Goods and Services Tax) Act 1999 section 188-5.

A New Tax System (Goods and Services Tax) Act 1999 section 188-10.

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.

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

Reasons for decision

Question 1

Section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) outlines who are required to be registered and it states:

You are required to be registered under this Act if:

(a) you are *carrying on an *enterprise; and

(b) your *GST turnover meets the *registration turnover threshold.

The registration turnover threshold is $75,000 (or $150,000 for non-profit organisations).

An 'enterprise' is defined in section 9-20 of the GST Act to include, amongst other things, 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.

On the information provided, the only enterprise is the leasing of the Property. We therefore need to determine whether the income from leasing and the proceeds from the sale of the Property are included in working out the GST turnover.

Section 188-10 of the GST Act provides that your GST turnover meets the registration turnover threshold if:

• 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

• 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 working out both your current and projected GST turnovers, you disregard certain supplies including supplies that are not for consideration and are not taxable supplies under section 72-5 of the GST Act (paragraphs 188-15(1)(b) and 188-20(1)(b) of the GST Act).

Section 72-5 of the GST Act is about supplies to associates for no consideration.

Since the acquisition, the Property has been continuously leased to partners in the Partnership who use the Property for their respective businesses. The partners pay market value rent and both are registered for GST. Therefore, the supply of the leasing of the Property to the partners is not disregarded when calculating both current and projected GST turnovers.

Section 188-25 of the GST Act provides that when calculating your projected GST turnover, paragraph 188-25(a) of the GST Act requires that you disregard any supplies made or likely to be made by you by way of transfer of ownership of capital assets.

The meaning of capital assets is discussed in Goods and Services Tax Ruling GSTR 2001/7. Paragraphs 31 and 32 of GSTR 2001/7 state:

31. The GST Act does not define the term 'capital assets'. 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' and may be described as the 'business entity, structure or organisation set up or established for the earning of profits'.

32. 'Capital assets' can include tangible assets such as your factory, shop or office, your land on which they stand, fixtures and fittings, plant, furniture, machinery and motor vehicles that are retained by you to produce income. 'Capital assets' can also include intangible assets, such as your goodwill.

In this case, the Partnership derives income from leasing the Property. As such, the Property is considered the profit yielding subject of the leasing enterprise. That is, the Property is a capital asset of the leasing enterprise. Hence, the sale of the Property is disregarded in the calculation of the projected GST turnover.

As such, although the proceeds from the sale of the Property are included in the calculation of current GST turnover, it is excluded in the calculation of projected GST turnover.

When the Property is sold, the current GST turnover is above $75,000. However, the projected GST turnover is below $75,000. Hence, the GST turnover does not meet the registration turnover threshold and the Partnership is not required to be registered for GST.

Question 2

GST is payable on the sale of the Property if the Partnership is making a taxable supply.

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) sets out the requirements of a taxable supply and it 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 for GST.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

(* denotes a term defined in section 195-1 of the GST Act.)

Based on the information provided, the sale of the Property is for consideration, the sale is made in the course or furtherance of the leasing enterprise carried on by the Partnership and the sale is connected with Australia as the Property is in Australia. As such, the requirements in paragraphs 9-5(a), 9-5(b) and 9-5(c) of the GST Act are satisfied. However, the Partnership is not registered for GST and as outlined in question 1 above, the Partnership is not required to be registered for GST. Hence, paragraph 9-5(d) of the GST Act is not satisfied.

Therefore, as not all the requirements of section 9-5 of the GST Act are satisfied, the sale of the Property is not a taxable supply.

There is no need to consider further whether the supply is GST-free or input taxed.