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Edited version of private advice
Authorisation Number: 1051515721564
Date of advice: 04 June 2019
Ruling
Subject: GST and the sale of real property
Question
Are you required to remit GST on the sale of the newly constructed townhouse?
Answer
Yes.
Relevant facts and circumstances
· You are an entity and you purchased the specified property situated in Australia.
· You bought the property with the intention to subdivide the land into two lots and to build two townhouses, one to live in and one to rent out.
· The purchase of the property and subdivision and construction costs is financed by bank loans.
· Due to bank requirements regarding the servicing and refinancing of the loans, you would not be able to finance both properties at the completion of the townhouses, based on your servicing level.
· You decided to keep only the house that you intended to live in.
· You decided to sell the other house that was to be your rental investment property, instead of renting it out.
· You have entered into a Contract of Sale with a purchaser to sell your rental investment property for the specified price.
· You have never built before.
· You do not carry on any enterprise or business activities, apart from this construction project.
· You do not have an ABN and you are not registered for GST.
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 188-25
Reasons for decision
GST is payable on taxable supplies.
The requirements of a taxable supply are set out in section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which 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 indirect tax zone; and
(d) You are *registered or *required to be registered.
However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.
(*Denotes a term defined in section 195-1 of the GST Act)
The sale of the property will meet the requirements of paragraphs 9-5(a) and 9-5(c) of the GST Act. This is because the sale will be a supply made for consideration and the property is located in Australia.
We need to establish whether the sale is made in the course or furtherance of an enterprise that you carry on. Moreover, you are currently not registered for GST. Therefore, we also need to determine whether you would be required to be registered for GST at the time of settlement of the sale of the property.
GST registration
Section 25-1 of the GST Act provides that you must make your application to be registered for GST within 21 days after becoming required to be registered.
Section 23-5 of the GST Act provides that an entity is required to be registered for GST if:
(a) the entity is carrying on an enterprise, and
(b) the entity's GST turnover meets the registration turnover threshold.
The ATO view on the meaning of the term 'enterprise' is explained in detail in Miscellaneous Taxation Ruling MT 2006/1 'The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number' (MT 2006/1). Goods and Services Tax Determination GSTD 2006/6 provides that the discussion in MT 2006/1 equally applies to the term 'enterprise' as used in the GST Act and can be relied on for GST purposes.
The applicable registration turnover threshold in this case is $75,000. You have a GST turnover that meets the registration turnover threshold if your current GST turnover is at or above $75,000 and your projected GST turnover is not below $75,000.
Goods and Services Tax Ruling GSTR 2001/7 explains the meaning of GST turnover and the effect of section 188-25 of the GST Act on the calculation of projected GST turnover. GSTR 2001/7 is available on our website at www.ato.gov.au
On the facts provided, we consider that you would satisfy all the requirements of section 23-5 of the GST Act. Consequently, you will be required to be registered for GST at the time of the sale of the townhouse at settlement.
All of the requirements of a taxable supply under section 9-5 of the GST Act will be met at the time of settlement and, the sale will be a taxable supply.
Consequently, GST will be payable on the sale of the newly constructed townhouse and you will be required to remit the GST payable on that sale.