Edited version of your written advice

Authorisation Number: 1051418850635

Date of advice: 21 August 2018

Ruling

Subject: GST and the sale of real property

Question

Has A made a taxable supply of real property for the purposes of section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the sale of real property by A is not a taxable supply for the purposes of section 9-5 on the basis that A is not registered, or required to be registered for GST.

Relevant facts and circumstances

This ruling is on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

All legislative references below are to A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

The seller (A) acquired a Property prior to 1 July 2000.

A entered into a Contract of Sale to sell the Property to an unrelated third party. The agreed purchase price of the Property is $XXXX with settlement occurring some months from the Day of Sale.

Relevantly, the Property is used by A for the purposes for conducting primary production activities relating to cattle farming. These activities will continue on the Property up until settlement date at which point the activities will cease and the business will terminate.

The Property will not be used by A for any other business purpose.

A is not currently registered for GST because the level of income derived from those activities is well below the GST registration threshold.

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 subsection 72-5

A New Tax System (Goods and Services Tax) Act 1999 section 188-10(1)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 188-15 (1)(a)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 188-15 (1)(b)

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-15 (3)

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-20 (1)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 188-25 (a)

A New Tax System (Goods and Services Tax) Act 1999 paragraph188-25(b)

A New Tax System (Goods and Services Tax) Act 1999 subparagraph188-25(b)(i)

Reasons for decision

Does section 9-5 apply?

Under the GST Act, an entity makes a ‘taxable supply’ where the supply:

● is made for consideration; and

● is made in the course or furtherance of an enterprise that you carry on; and

● is connected with the indirect tax zone; and

● is made by a supplier who is registered, or required to be registered, for GST.

The supply consists of a supply of the Property which is located in Australia. The supply will be made in the course of terminating A’s enterprise, which is a supply made in the course of furtherance of the enterprise that A carries on [see paragraph 28, GSTR 2001/7 Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected turnover (GSTR 2001/7)]. Therefore, the sale of the Property will satisfy the first three elements outlined above. Accordingly, we need to determine whether the final item is also satisfied. A is not currently registered for GST, nor does it intend to register for GST prior to or at settlement date.

Is A required to be registered for GST because any turnover threshold limit is met?

Section 23-5 states that an entity is required to be registered for GST if:

● it is carrying on an enterprise; and

● its ‘GST turnover’ meets the ‘registration turnover threshold’.

A will be required to be registered for GST if its ‘GST turnover’ meets the ‘registration turnover threshold’, which is $75,000 for entities generally.

Subsection 188-10(1) provides that an entity has a ‘GST turnover’ that meets a particular turnover threshold if:

● your ‘current GST turnover’ is at or above the turnover threshold, and the Commissioner is not satisfied that your ‘projected GST turnover’ is below the turnover threshold; or

● your ‘projected GST turnover’ is at or above the turnover threshold.

Subsection 188-15(1) states that an entity’s ‘current GST turnover’ during a particular month is the sum of the values of all the supplies that it made, or that it is likely to make, during the 12 months ending at that month. However, the following supplies are excluded:

● supplies that are input taxed; and

● supplies that are not for consideration [and are not taxable supplies under section 72-5 – as per paragraph 188-15(1)(b)]; and

● supplies that are not made in connection with an enterprise that is carried on; and

● supplies that are disregarded as outlined in subsection 188-15(3).

A’s ‘current GST turnover’ for the 12 months ending at the month in which the settlement date for the sale of the Property will occur, will include estimated sales revenue of $XXX and the $XXX proceeds from the sale [which in total exceed the registration turnover threshold]. Therefore, the ‘current GST turnover’ will be above the registration turnover threshold.

However, as provided in paragraph 188-10(1)(a), the fact that an entity’s ‘current GST turnover’ is above the registration turnover threshold will not result in the registration turnover threshold being met provided that the Commissioner is satisfied that the entity’s ‘projected GST turnover’ is below the registration turnover threshold’.

Is A’s projected GST turnover below the registration threshold?

Subsection 188-20(1) provides that an entity’s ‘projected GST turnover’ during a particular month is the sum of the values of all the supplies that it made, or that it is likely to make, during that particular month and the next 11 months. However, the provision also lists a number of types of supplies which are excluded from the calculation of the projected GST turnover. The exclusions in paragraphs 188-25(a) and 188-25(b) are of most relevance to A.

(a) Is the sale of the Property a supply made by way of transfer of a capital asset?

The GST Act does not define the term ‘capital asset’. The Commissioner considers capital assets are those assets that make up the profit yielding subject of an enterprise, and can be referred to as structural assets. Capital assets can include tangible assets such as a factory, shop or office, or land on which they stand.

GSTR 2001/7 indicates, at paragraphs 33 and 34, that the Commissioner considers capital assets do not include assets which are acquired and used for resale in the course of carrying on an enterprise, for example, trading stock. Capital assets should be distinguished from revenue assets, which are inherently utilised in, or incidental to, the carrying on of a business.

The Property is clearly part of the profit yielding structure of A’s cattle farming primary production enterprise and, since the Property was purchased by A before 2000, it has not been purchased for the purpose of resale or another purpose that would indicate that the asset is on revenue account.

Therefore the sale of the Property by A represents the transfer of ownership of a capital asset and will satisfy paragraph 188-25(a). Consequently any proceeds received from the sale should be excluded from the calculation of ‘projected GST turnover’.

(b) Is the sale of the Property made solely as a consequence of ceasing to carry on an enterprise?

The phrase ‘solely as a consequence’ is not defined in the GST Act. At paragraph 41 of GSTR 2001/7, the Commissioner considers a supply is made, or is likely to be made, ‘solely as a consequence’ where the supply is made only as a result of the ceasing of an enterprise or the substantial and permanent reduction in size or scale of an enterprise.

A will be selling the Property solely as part of ceasing their cattle farming enterprise, because after the date of settlement, A will not continue their cattle farming activities. Therefore the sale of the Property will satisfy paragraph 188-25(b)(i) and consequently any proceeds received from the sale of the Property will be excluded from the calculation of ‘projected GST turnover’.

On the basis that A will not be registered, or required to be registered for GST, at the time of supplying the Property, the supply will not satisfy all the requirements of section 9-5 and will not be a taxable supply for GST purposes.