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Edited version of your written advice
Authorisation Number: 1051458610302
Date of advice: 23 November 2018
Ruling
Question
Does your activity of engaging a builder to construct a residential dwelling at a specified location (the Property) for the purpose of a sale constitute an ‘enterprise’, as defined by section 9-20 of the A New Tax System (Goods and Services Tax Act) 1999 (GST Act)?
Answer
No.
You are not making a taxable supply of the Property. This is because you are not required to be registered for GST pursuant to section 23-5 of the GST Act when you sell the Property. As the sale of the Property will constitute the transfer of ownership of a capital asset, the sales proceeds are disregarded when calculating your projected GST turnover.
The scheme commences on:
XX/mth/20XX
Relevant facts and circumstances
You signed contracts for the land and the building of a house on No/Street/Suburb in the State of BB as a home and land package in mth/20XX.
The purchase was for private purposes, with the intention to build and keep the house as a long-term rental property.
You also has a property in XYZ which you have been renting out since 20XX.
In mth/20XX you suffered a medical condition and you have temporarily lost your driving license. You were again hospitalised in mth/20XX and had weeks of rehabilitation.
Due to these health issues, you decided to sell both the XYZ property and the property in the State of BB.
To sell the XYZ property, repairs and maintenance were done. However, XYZ property was badly damaged by bushfires and this set back the sale of your property.
The house in the State of BB was finalized and put on the market in mth/20XX and sold soon after; the sale is to be completed late mth/20XX.
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 9-40
A New Tax System (Goods and Services Tax) Act 1999 Section 23-5
A New Tax System (Goods and Services Tax) Act 1999 Section 40-35
A New Tax System (Goods and Services Tax) Act 1999 Division 188
Reasons for decision
Section 9-40 provides that you are liable for GST on any taxable supplies that you make.
Section 9-5 provides that you make a taxable supply if:
a) you make the supply for consideration
b) the supply is made in the course or furtherance of an enterprise that you carry on
c) the supply is connected with the indirect tax zone (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.
Of relevance is whether you are making a supply of the Property in the course or furtherance of an enterprise that you carry on and if 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 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, it is necessary to consider 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).
The meaning of GST turnover is contained in Division 188 of the GST Act.
Section 188-10 of the GST Act 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 other than supplies that are input taxed.
Your ‘projected GST turnover’ is the sum of your turnover for the current month and the next 11 months other than supplies that are input taxed.
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 the 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 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.
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 of the GST Act and will therefore be disregarded when calculating your projected GST turnover.
As the proceeds from the intended sale of your Property, as outlined in the facts, are disregarded when calculating your projected GST turnover, your projected GST turnover will be below the GST registration turnover threshold. Therefore, you are not required to be registered for GST pursuant to section 23-5 of the GST Act when you sell the Property.
Conclusion
GST is payable on any taxable supplies that you make. One of the requirements of a taxable supply is 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 would not be making a taxable supply when you sold the Property in the State of BB.