Edited version of private advice

Authorisation Number: 1051554775928

Date of advice: 26 July 2019

Ruling

Subject: Sale of commercial premises and GST

Question

Is the partnership of the trusts liable for GST on the sale of an interest in commercial premises?

Answer

No.

This ruling applies for the following period:

1 July 2019 to 30 June 2020.

Relevant facts and circumstances

You (a partnership of X and Y) acquired commercial premises (the property) located in Australia after 1 July 2000.

You previously leased the premises to tenants and were registered for GST as your turnover was greater than $75,000. There was no formal lease as you leased the premises to associated entities. The property continues to be occupied by a related party to one of your partners.

A dispute arose amongst your partners and an application was made to a tribunal. Rent ceased to be payable by the tenants after this by order of the tribunal.

You cancelled your registration a few months after rent ceased being payable.

X and Y entered into a contract of sale to sell the interest held in the property by X. The purchaser is Y, (or a nominee). The purchase price is $x and the contract indicates that this is a GST exclusive amount (if any GST is payable).

Settlement has not yet occurred.

You do not currently and will not receive any rent payments prior to settlement.

Reasons for decision

A sale of an interest in commercial premises will be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) if;

·        the sale is for consideration

·        the sale is made in the course or furtherance of an enterprise you carry on

·        the property is connected with the indirect tax zone, and

·        you are registered or required to be registered for GST.

However, the sale will not be a taxable supply to the extent that it is GST-free or input taxed.

On the information provided, the sale of the interest in the property will not be GST-free or input taxed.

The sale of the interest in the property will be for consideration. The property is located in Australia and therefore connected with the indirect tax zone.

However, you are not currently registered for GST. It also needs to be determined whether the sale will be in the course or furtherance of an enterprise you carry on.

Carrying on an enterprise includes doing anything in the course of the commencement or termination of the enterprise (section 195-1 of the GST Act).

You carried on an enterprise of leasing commercial premises and were registered for GST until xx/xx/xxxx. Goods and Services Tax Ruling GSTR 2004/6 Goods and services tax: tax law partnerships and co-owners of property explains how the GST Act applies to transactions involving tax law partnerships.

As explained in paragraph 3 of GSTR 2004/6; "Most tax law partnerships arise in situations involving the leasing of co-owned property. Consequently, this Ruling focuses on tax law partnerships that arise when there is receipt of ordinary income jointly from the leasing of co-owned property."

It is considered that you were carrying on an enterprise as a tax law partnership.

Paragraph 219 of GSTR 2004/6 explains that an "enterprise partnership (a tax law partnership) terminates if the association of persons is no longer in receipt of income jointly." One of the circumstances that may lead to the termination of a tax law partnership is where the property or properties are no longer used for an income producing purpose.

Your partners ceased to receive income jointly and you then cancelled your GST registration. Given this, it could be considered that the tax law partnership has terminated and the sale of the interest in the property is not a supply by you.

If that is the case, then you (the tax law partnership) will have no GST liability in relation to the sale of the interest in the property.

Alternatively, it could be considered that the sale of the interest in the property is still a supply by you as a partnership. This is because of the following factors:

·        a dispute arose between your partners whilst you were carrying on the enterprise of leasing and registered for GST

·        an application was made to a tribunal to resolve the dispute

·        the tribunal ordered no more rental payments to be made, and

·        the sale of the interest in the property is the final act to resolve the dispute and terminate the enterprise.

If you are considered to be making the supply of the interest in the property as part of terminating your enterprise, then it needs to be determined whether you are required to be registered for GST.

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 indicated above, carrying on an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

Your current GST turnover is nil based on the information provided by you. In calculating your projected GST turnover, section 188-25 of the GST Act provides that you can disregard:

·        any supply made by you by way of transfer of ownership of a capital asset of yours, and

·        any supply made by you solely as a consequence of ceasing to carry on an enterprise.

The sale of an interest in the property by you would satisfy either of these exceptions to the calculation of projected GST turnover. Your projected GST turnover is therefore less than $75,000 and you are not required to be registered for GST.

Therefore, if you are considered to be making the supply of the interest in the property, you are not currently registered, or required to be registered, for GST. As such, you will have no GST liability on the sale of the interest in the property.

Given the above, it is not necessary to determine if the sale of the interest in the property is a supply made by you as you will have no GST liability in relation to the sale of the interest of the property.