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Edited version of your written advice
Authorisation Number: 1013080130206
Date of advice: 31 August 2016
Ruling
Subject: GST and the sale of real property
Question 1
Is the entity making a creditable acquisition under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 when it purchases the property?
Answer
No, as the sale of the land by the vendors is not a taxable supply, the entity is not making a creditable acquisition.
Relevant facts and circumstances
The entity has entered into a contract to purchase real property.
The entity intends to develop the property into smaller home lots to be sold as taxable supplies.
The vendors are two people. The vendors have carried on a primary production partnership and have been registered for GST.
The property is, residential premises, which includes sheds, a dam and a large area of land. The premises are the vendors' principal place of residence and the vendors previously carried on an enterprise on the property.
The contract of sale for the property states that the sale price is an amount of money and that no GST is payable.
The vendors no longer carry on any enterprise and, as such, will request that the Commissioner of Taxation cancel their GST registration.
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 11-5.
Reasons for decision
An entity makes a creditable acquisition under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) if:
• the acquisition is solely or partly for a creditable purpose; and
• the supply of the thing is a taxable supply; and
• the entity provides, or is liable to provide, consideration for the supply; and
• the entity is registered, or required to be registered.
Broadly, an entity makes an acquisition for a creditable purpose if the acquisition is made in the course of carrying on its enterprise and the purchase does not relate to making input taxed supplies. As the entity intends to sub-divide and develop the property to be sold, it is acquiring the property for a creditable purpose.
Generally, the supply of property is a taxable supply if:
• the supply is for consideration; and
• the supply is made in the course or furtherance of an enterprise that is carried on; and
• the supply is connected with the indirect tax zone; and
• the supplier is registered, or required to be registered; and
• the supply is neither GST-free nor input taxed.
All of the above requirements must be met for the sale of the property to be a taxable supply.
The sale is for consideration as stated in the contract.
Carrying on an enterprise includes doing anything in the course of termination of that enterprise. Therefore, the sale of property that has been used in the conduct of an enterprise is a supply in the course of that enterprise.
The indirect tax zone includes all of mainland Australia. As the property is located within Australia, the supply is connected with the indirect tax zone.
The vendors were previously carrying on an enterprise and were registered for GST. However, they have ceased undertaking that (or any other) enterprise and will request their GST registration be cancelled prior to settlement. Therefore, they will not be registered for GST when the supply occurs.
Generally, an entity is 'required to be registered' for GST if it makes or intends to make supplies in the current month plus the following 11 months that total $75,000 or more (GST exclusive). However, section 188-25 of the GST Act specifically excludes any supplies of capital assets from the calculation of an entity's projected annual turnover. The property is held by the vendors, is a capital asset of the vendors and, as such, the sale is not included when determining whether the entity is required to be registered.
As the vendors will not be registered at the time of the supply (ie settlement) and the vendors will not be required to be registered as the only supplies being made by the vendors are of capital assets, the sale of the property is not a taxable supply under section 9-5 of the GST Act.
As the sale of the property is not a taxable supply made by the vendors, it is not a creditable acquisition made by the entity.