Edited version of private advice

Authorisation Number: 1051580934877

Date of advice: 12 November 2019

Ruling

Subject: GST and taxable supply

Question

Are you (A and B) making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) when you sell your properties located at the specified address?

Answer

No, you are not making a taxable supply when you sell the properties. GST will not be payable on the sale.

This ruling applies for the following period:

ddmmyyyy to ddmmyyyy

The scheme commences on:

ddmmyyyy

Relevant facts and circumstances

A in the capacity of an individual entity has an Australian business number (ABN). A is not registered for GST.

B in the capacity of an individual entity has an ABN. B is not registered for GST.

You, as a partnership, do not have an ABN. You are not registered for GST.

In mmyyyy, you purchased <specified address> as joint tenants. The property had an existing house at the time of the purchase. The property became your family home. Your family lived at the property for the next n years as your children were attending a primary school close by.

In mmyyyy, the house was demolished and a number of units, being <specified unit number(s)> were built. It was your intention to live in one of the units and lease the other unit(s). The development was partially funded by an interest free loan from your parents and partly from the sale proceeds of other properties. The units were completed in mmyyyy. You moved into <specified unit number> and leased <specified unit number(s)>.

You intend to buy a larger home closer to the suburb of <specified suburb name>. This is so that you can be closer to your child's school. You also plan for your other children to attend school in that area. In addition, you need a larger family home.

To facilitate the move you plan to sell at least one of the units.

Your property ownership is shown in table 1 below.

Table 1: Summary of previous and current property ownership

You do not carry on any other enterprises other than the lease of <specified address>.

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 paragraph 9-5(b)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-5(d)

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-20(1)

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 72-5

A New Tax System (Goods and Services Tax) Act 1999 section 184-1

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

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

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision

Detailed reasoning

Liability for GST on a taxable supply

Section 9-40 provides that you must pay the GST payable on any taxable supply that you make.

If a provision of the GST Act uses the expression 'you', it applies to entities generally, unless its application is expressly limited.

Accordingly, we need to determine which entity will be making the supply.

Relevant entity for this ruling

The term 'entity' is defined for the purpose of the GST Act. Section 184-1 states:

(1)  Entity means any of the following:

(a)  An individual;

(b)  ...

(c)  A partnership;

...

Goods and Services Tax Ruling GSTR 2004/6 Goods and services tax: tax law partnerships and co-owners of property (GSTR 2004/6) deals with whether a tax law partnership exists. The various paragraphs in GSTR 2004/6 provide:

8. A partnership is defined in section 195-1 by reference to the definition of 'partnership' in subsection 995-1(1) of the ITAA 1997.⁷ That definition states:

partnership means:

(a) an association of persons (other than a company or a limited partnership) carrying on business as partners or in receipt of ordinary income or statutory income jointly; or

(b) ...

10. The second limb of paragraph (a) of the definition includes as a partnership an association of persons (other than a company or a limited partnership) 'in receipt of ordinary income or statutory income jointly'. We refer to this type of partnership as a tax law partnership.

25. A tax law partnership exists only if there is an association of persons 'in receipt of income jointly'. To be in receipt of income jointly, it is not necessary to have actually received the income. We consider that there is receipt of income jointly if there is a joint entitlement to income.

Based on the facts and circumstances of this case, we consider a tax law partnership exists in relation to your lease or sale of <specified unit number(s)>. Accordingly, this ruling applies to the partnership.

Taxable supply

Section 9-5 provides that:

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 the 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.

For your supply to be taxable it must satisfy all the requirements of section 9-5. You will not make a taxable supply if you fail to meet one of the requirements of section 9-5.

Enterprise

Subsection 9-20(1) states:

An enterprise is an activity, or series of activities, done:

(a)  in the form of a * business; or

(b)  in the form of an adventure or concern in the nature of trade; or

(c)  on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property; or

...

Further, 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) explains when certain activities will amount to an enterprise. Some paragraphs in MT 2006/1 are extracted for your information:

234. Ordinarily, the term 'business' would encompass trade engaged in, on a regular or continuous basis. However, an adventure or concern in the nature of trade may be an isolated or one-off transaction that does not amount to a business but which has the characteristics of a business deal.

244. An adventure or concern in the nature of trade includes a commercial activity that does not amount to a business but which has the characteristics of a business deal. Such transactions are of a revenue nature. However, the sale of the family home, car and other private assets are not, in the absence of other factors, adventures or concerns in the nature of trade. The fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature.

<Specified unit number>

<Specified unit number> is your residence. Paragraph 244 of MT 2006/1 explains that in the absence of other factors, the sale of the family home will not be an adventure or concern in the nature of trade.

The sale of <specified unit number> will be the sale of your family home. There are no other factors that will result in the sale being an adventure or concern in the nature of trade. Accordingly, the sale of <specified unit number> will not satisfy paragraph 9-5(b). That is, the sale will not be made in the course or furtherance of an enterprise that you carry on.

Therefore, the sale of <specified unit number> will not be a taxable supply. GST will not be payable on the sale.

<Specified unit number(s)> - Leasing enterprise

Leasing is an activity that meets the definition of an enterprise under paragraph 9-20(1)(c). As such, you are carrying on a leasing enterprise.

Further, section 195-1 provides that 'carrying on' an enterprise includes doing anything in the course of the commencement or termination of the enterprise. This means, the sale of Unit 216B will be a supply made in the course or furtherance of the leasing enterprise you carry on.

Accordingly, the sale of <specified unit number(s)> satisfies paragraph 9-5(b).

We now consider whether you satisfy paragraph 9-5(d).

Requirement to be registered

As you are not registered for GST, we will 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 GST registration turnover threshold, which is currently $75,000 for entities other than non-profit entities.

We consider that you are carrying on a leasing enterprise.

However, if your GST turnover does not meet the GST registration turnover threshold then you are not required to be registered.

Next, we will consider whether your GST turnover meets the GST registration turnover threshold.

GST registration turnover threshold

Subsection 188-10(1) provides that you have a GST turnover that meets the registration turnover threshold if:

• your current GST turnover is at or above the registration turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the registration turnover threshold, or
• your projected GST turnover is at or above the registration turnover threshold.

The registration turnover threshold applicable to you is $75,000.

It is necessary to determine whether your projected GST turnover meets the threshold. You are required to be registered for GST if your projected GST turnover is at or above $75,000.

Your projected GST turnover is the sum of the values of all supplies made in a particular month plus the next 11 months.

Supplies that are disregarded when working out your projected GST turnover include:

• supplies that are input taxed
• supplies that are not for consideration (and are not taxable supplies under section 72-5 of the GST Act)
• supplies that are not made in connection with an enterprise that you carry on
• supplies that are not connected with Australia

Your supply of residential premises by way of lease is input taxed. Such supplies are disregarded when working out your projected GST turnover.

In addition, section 188-25 provides that when calculating your projected GST turnover, you do not include any supplies made, or likely to be made by you:

• by way of transfer of ownership of a capital asset, or
• solely as a consequence of ceasing an enterprise or substantially and permanently reducing the size or scale of your enterprise.

Capital asset

The meaning of 'capital asset' is discussed in paragraphs 31 to 36 of 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 (GSTR 2001/7).

The GST Act does not define the term "capital asset". However, GSTR 2001/7 explains that 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. They 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. If the means by which you derive income is through the disposal of an asset, the asset will be of a revenue nature rather than a capital asset even if such a disposal is an occasional or one-off transaction. Therefore, the character of an asset must be determined at the time of expected supply.

You held <specified unit number(s)> in order to derive lease income. You did not acquire the property/properties in order to derive income from its/their disposal. The property/properties is/are therefore capital asset in nature. It follows then, that the disposal of <specified unit number(s)> will be excluded from the calculation of your projected GST turnover.

You do not carry on any other enterprises other than the lease and potential sale of <specified unit number(s)> your projected GST turnover will be below $75,000. Your GST turnover will not meet the $75,000 GST registration turnover threshold. Therefore, you are not required to be registered under section 23-5. You do not satisfy paragraph 9-5(d). Accordingly, your supply of <specified unit number(s)> will not be a taxable supply. GST will not be payable on the sale.