Edited version of your written advice

Authorisation Number: 1051192022180

Date of advice: 17 February 2017

Ruling

Subject: GST and sale of property

Question 1

Are you making a taxable supply when you sell your property situated at a specified location to a single purchaser?

Answer

No

Question 2

Are you making a taxable supply when you sell your property situated at a specified location in four separate lots to multiple buyers?

Answer

No

Relevant facts and circumstances

You are not currently registered for GST.

You were previously registered for GST from 1 July 2000 and cancelled your registration in 2015. You were registered for GST for the purposes of carrying on your enterprise of providing business consulting services.

You own property situated at a specified location (the Property).

The Property comprises five separate lots. Lot 5 contains the family residence with Lots 1 - 4 comprising the gardens and surrounding property.

You acquired Lot 5 from your parents prior to 1985.

You acquired Lots 1 - 4 also from your parents in 198X

The Property has been in your family for more than 100 years and is approximately 2 acres in land.

Your parent resided on the Property until their passing in the 1990s.

During the period between 199X and 201X you leased the Property to third parties from time to time. The Property has not been occupied since mid-late 201X.

The Property has not been marketed for lease since that date as the intention was to sell the Property. However, if a party approached you with an offer to lease, this option would be considered.

You do not engage in any other property leasing activities, either residential or commercial.

In 200X the boundaries of the five lots were redefined and the easements updated. During the process the five lots were converted to six lots overall.

The newly created Lot 6 contains the self-contained garage buildings.

You no longer use the Property and have decided to sell the Property.

The Property was listed for sale in 201X. Interest was shown by potential buyers however buyers expressed concern regarding potential restrictions on renovations or rebuilding works on the house due to perceived heritage value.

You submitted indicative development applications to the relevant municipal council (Council) in 201X. The applications covered a potential renovation of the existing house, renovations of the garage buildings and the potential construction of new dwellings on Lots 1 - 4.

The purpose of the submission of indicative development applications was to demonstrate to potential buyers that the Property could be built on and that the existing residence could be substantially renovated addressing their concerns.

The eventual purchasers of the Property could then decide whether they would undertake any renovations or construction and what design to pursue.

It is not your intention to undertake any of the potential developments submitted as part of the indicative development applications.

The Council granted consent to the indicative development applications in 201X.

To date no buyer has been identified to purchase the Property as a whole (Lots 1 - 6). As such you have decided that you may offer the Property for sale in four separate lots:

● Lot 5 (containing the existing family residence);

● Lot 6 ((containing the garage buildings);

● Lot 1 and Lot 3 ;

● Lot 2 and Lot 4.

Your preference remains to sell the Property as a whole to a single buyer however are conscious that this may be significantly more difficult than selling the four smaller properties.

There is presently no driveway access and no service connections (water, electricity, telephone/cable, etc) to Lots 1 - 4. In order to facilitate the possible sales of Lot 1 and Lot 3 together and Lot 2 and Lot 4 together, those Lots require at a minimum that a driveway be built and a management plan be put in place to determine and apportion the availability of ordinary home services, maintenance of the driveway, sharing of relevant costs and so on.

You intend to lodge a 'preliminary works' development application for the construction of a driveway, associated services and the creation of a management plan for the site.

You would then intend to sell the lots, exchange contracts for the sales and in the period between the exchange of contracts and settlement have those preliminary driveway and services works completed. You will not conduct any additional works on the Property.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 9-40

Section 9-5

Section 9-20

Section 23-5

Division 188

Section 188-10

Paragraph 188-25(a)

Subparagraph 188-25(b)(i)

Section 195-1

Section 40-65

Reasons for decision

Note: In this reasoning, unless otherwise stated,

● all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

● reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

Section 9-40 provides that you are liable for GST on any taxable supplies that you make.

Section 9-5 provides 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.

The question in this case is whether you are making the supply of the Property in the course or furtherance of an enterprise that you carry on. If so, as you are not registered for GST, a further question will be whether you are required to be registered for GST.

Section 9-20 provides that the term 'enterprise' includes, among other things, an activity or series of activities done:

● in the form of a business;

● in the form of an adventure or concern in the nature of trade;

● on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.

Section 195-1 states that the phrase 'carrying on' in the context of an enterprise includes 'doing anything in the course of the commencement or termination of the enterprise'.

In this case, you acquired the Property from your parents in two transactions in 198X and 198X.Your parent resided at the Property until their passing and for the period between 199X and 201X you leased the Property to third parties from time to time. Given these facts, we consider that you carried on an enterprise for GST purposes being activities done on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.

As you are not currently registered for GST, the next issue to consider is whether you are required to be registered for GST.

Section 23-5 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 (currently $75,000).

As discussed above, it is considered that the rental of the Property constitutes an 'enterprise' for GST purposes.

The meaning of GST turnover is contained in Division 188. Section 188-10 provides that your GST turnover will meet the registration turnover threshold if:

a) your current GST turnover is at or above the threshold ($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 your turnover for the current month and the previous 11 months.

Your 'projected GST turnover' is the sum of your turnover for the current month and the next 11 months.

Paragraph 188-25(a) provides that when calculating your projected turnover you disregard any supply made, or likely to be made, by way of transfer of ownership of a capital asset of yours. As such, we need to consider whether your sale of your Property is excluded from the calculation of 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 (GSRT 2001/7) discusses what is regarded as a 'capital asset' at paragraphs 31 to 36.

Whilst not specifically defined for GST purposes, the term 'capital assets' generally refers to those assets that make up the profit yielding subject of an enterprise and 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. In this case the Property has been in your family for more than a century and you have owned the Property in excess of 25 years. The Property has been used for residential purposes for the entire period of your ownership.

Given the facts in this case we consider the sale of the Property, either as a whole or in separate lots, constitutes the transfer of a capital asset for the purposes of section 188-25 and will therefore be disregarded when calculating your projected GST turnover.

As the proceeds from the sale of your Property are disregarded when calculating your projected GST turnover, your projected GST turnover will be below the GST registration turnover threshold and you are not required to be registered.

Conclusion

GST is payable on any taxable supplies that you make. One of the requirements of a taxable supply include that you are registered or required to be registered for GST.

In this case, you are neither registered nor required to be registered for GST and as such will not be making a taxable supply when you sell the Property.

Other relevant comments

The above is based on the fact that you do not currently carry on an enterprise (other than the termination of your leasing enterprise). If prior to selling the Property you begin to carry on an enterprise and register for GST, the sale of the Property as a whole would be considered to be an input taxed supply of residential premises pursuant to section 40-65. However, where the Property is sold as separate lots, the characteristics of each individual lot/s sold will need to be examined to determine the GST classification of each separate sale/supply.