Edited version of your written advice

Authorisation Number: 1051208076425

Date of advice: 30 March 2017

Ruling

Subject: GST and sale of property

Question

Are you making a taxable supply when you sell property located at a specified location in your capacity as Executor for the Relevant Estate?

Answer

No.

Relevant facts and circumstances

You are not registered for GST.

X (the Deceased) passed away in 20WW and at the time of their death owned adjoining properties situated at a specified location (the Property).

The Deceased acquired the Property on the following dates:

● Lot A - 19XY

● Lot B - 19YZ

Lot B contained the following dwellings:

● weatherboard residential dwelling;

● single car garage.

Lot A contained the following dwellings:

● brick residential dwelling;

● brick double garage;

● numerous other sheds used for storage

The Deceased carried on an enterprise of primary production (farming) from the date of acquisition until 20VV when they ceased their enterprise due to poor health and old age. The Deceased resided on the Property until this date.

The Properties were leased from 20VV to 20ZZ with rental income being below $75,000 per annum.

Following the death of X in 20WW, you continued to carry on the leasing enterprise of the Deceased until late 20ZZ when the lease on Lot A expired. The lease on Lot B expired in 20XX.

The Deceased was not registered for GST.

In early 20YY, you sold a percentage of the Property to the relevant local council under a compulsory land acquisition scheme.

The remainder of the Property was placed on the market and in 20YY contracts were exchanged for the sale of the Property.

In the course of the conveyancing transaction you received a deposit plus an amount as compensation due to a delay in settlement.

In 20ZZ, the purchaser proposed amending the contract sale price. As a result you terminated the sale contract and commenced legal action for breach of contract.

The Property will go back on the market pending the outcome of legal action.

Relevant legislative provisions

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

Section 9-5

Section 9-20

Section 9-40

Section 23-5

Division 188

Section 188-10

Paragraph 188-25(a)

Section 195-1.

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 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 in your capacity as trustee administering the estate of the Deceased.

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 was acquired by the Deceased in the 1970s and was used as both their primary place of residence and to carry on their primary production business until 20VV. The Deceased ceased their primary production business in 20VV at which time they leased the Property until their death in 20WW. Following their death, you continued to lease the Property until the current leases expired, the last lease expiring in 20ZZ.

Given the facts in this case, we consider the sale of the Property 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 the 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.