Edited version of your written advice

Authorisation Number: 1051357491416

Date of advice: 11 April 2018

Ruling

Subject: GST on the sale of real property

Question 1

Are you 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

No.

Question 2

Is the sale of the Land a taxable supply under section 9-5 of the GST Act?

Answer

No.

Relevant facts and circumstances

You carry on an enterprise of leasing which includes the leasing of a commercial property and prior to the sale discussed below, the leasing of land for farming use.

You were previously registered for GST but ceased to be registered for GST effective a few months ago.

A number of years ago you acquired the Land.

A few years after your purchase, the land was used by your related entity for a farming business.

From a few years ago, you did not receive any rental income from your related entity for the use of the land but the related entity has always paid for the council rates and other outgoings in relation to the land for the use of this land.

With the recent sale of the land, there will be no further leasing of the land to the related entity.

The rental income is a certain sum annually.

It is expected that the leasing of the commercial property will continue for the foreseeable future with the annual income remaining the same.

You entered into a contract to sell the land for over $75,000 and settlement occurred on a particular date.

You were not registered for GST at settlement.

The Land did not contain a residence or any other premises. There was also no further developments on the Land prior to the supply of the Land.

The Land was a capital asset owned by you.

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 23-5.

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.

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

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.

You carry on an enterprise of leasing which includes prior to the sale discussed below, the leasing of Land for the use by a related entity’s farming business.

We therefore need to determine if your GST turnover meets the registration turnover threshold.

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.

Whether you have a GST turnover that meets or does not exceed $75,000 depends on an objective assessment.

The relevant time in determining whether you have exceeded the turnover threshold is the time when you make or are likely to make the supply. This is the time of settlement of the sale of the Land.

As per the submission, your current GST turnover is above $75,000.

However, even if your current GST turnover is above $75,000, if you can satisfy the Commissioner that your projected GST turnover is below $75,000, you are not required to be registered for GST.

Section 188-25 of the GST Act provides that when calculating your projected GST turnover you disregard:

(a) any supplies made or likely to be made by you by way of transfer of ownership of capital assets, and

(b) any supply made, or likely to be made, by you solely as a consequence of:

(i) ceasing to carry on an enterprise; or

(ii) substantially and permanently reducing the size and scale of an enterprise.

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.

You derived income from leasing the Land. As such, the Land is considered the profit yielding subject of the leasing enterprise. That is, the Land is a capital asset of the leasing enterprise. Further, following the transfer of the Land, the leasing enterprise will be substantially reduced in size, in that it will only retain the much smaller commercial property for leasing. Hence, the sale of the Land is disregarded in the calculation of the projected GST turnover.

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

On the settlement date, the current GST turnover is above $75,000. However, the projected GST turnover is below $75,000. Hence, your GST turnover does not meet the registration turnover threshold and you are not required to be registered for GST under section 23-5 of the GST Act.

Question 2

GST is payable on the sale of the Land 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.

Based on the information provided, the sale of the Land 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 Land 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 Land is not a taxable supply.

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