Edited version of your written advice

Authorisation Number: 1051214942661

Date of advice: 21 April 2017

Ruling

Subject: GST and sale of property

Question

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

Answer

No. Provided you are not registered for GST at the time the Property is sold (settlement).

Relevant facts and circumstances

The Trustee for Estate of the X (You) are registered for GST effective from 1 January 2017.

You have requested the private ruling is prepared on the basis you are not registered for GST as you are seeking advice from your tax representatives on this issue.

X (the Deceased) passed away in 201X and at the time of their death owned commercial property located at a specified address (the Property).

The Deceased acquired the Property in 195X in co-ownership with their spouse. On the death of their spouse, the Property was held in X name alone.

The Deceased held the Property as a passive investment, leasing the Property from the date of purchase until their date of death.

The Deceased was not registered for GST.

Following the death of X, you continued to administer the existing lease.

Turnover from the lease of the Property is less than $75,000 per annum.

Total turnover generated from administering the estate is less than $75,000.

You will now sell the Property in carrying out your duties as executors to the estate.

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 are carrying 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. The sale of the leased property is considered to be an activity related to the carrying on of this enterprise.

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 the 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 1950s and was leased commercially from the date of acquisition until their death. Following their death, you continued to lease the Property with an existing tenancy currently in place.

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 includes 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.