Edited version of private advice

Authorisation Number: 1051586101830

Date of advice: 27 September 2019

Ruling

Subject: GST and sale of real property

Question

Is the entity making a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when it sells a real property it holds?

Answer

No.

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Entity is currently not registered for GST.

The Entity bought vacant land in 80s and rented it out for primary production use.

The land is located in the State of ABC.

The renting of the property is the only activity the Entity has been carrying on and the revenue from it is below $XXX per annum.

The Entity is planning to subdivide the vacant land into 3 blocks and put them on market for sale.

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 9-20

A New Tax System (Goods and Services Tax) Act 1999 Section 23-5

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

Reasons for decision

GST is payable on a taxable supply. Under section 9-5 of the GST Act, 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.

Based on the facts provided, the Entity's supply of the property in question satisfies the requirements under paragraphs 9-5(a) and 9-5(c) of the GST Act as the supply that it makes is for consideration and the property is located in Australia.

Therefore, we need to consider:

·         whether the supply of the property is in the course or furtherance of an enterprise that the Entity carries on (paragraph 9-5(b) of the GST Act), and

·         whether the Entity is required to be registered for GST (paragraph 9-5(d) of the GST Act).

Is the Entity carrying on an enterprise?

The definition of an enterprise in section 9-20 of the GST Act includes (amongst other things) an activity or series of activities, done:

·         in the form of a business

·         in the form of an adventure or concern in the nature of trade, or on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.

The meaning of enterprise is considered 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 and Goods and Services Tax Determination GSTD 2006/6 Goods and services tax: does MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999?. They have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the GST Act. The principles outlined in these rulings have been applied in the current case.

The Entity has been renting out the property therefore we consider that its leasing activities constitute an enterprise for the purposes of section 9-20 of the GST Act. Accordingly, the sale of the property is done in the course or furtherance of an enterprise that the Entity carries on. As such, the Entity's supply of the land satisfies the requirement of paragraph 9-5(b) of the GST Act.

The only issue that needs to be considered now is whether the Entity is registered or required to be registered for GST and satisfy the requirement of paragraph 9-5(d) of the GST Act.

As the Entity is currently not registered for GST, it needs to be established whether or not it is required to be registered for GST in relation to the sale of the property.

Whether the Entity is required to be registered for GST

Section 23-5 of the GST Act states:

You are required to be registered under this Act if:

(a)  you are *carrying on an *enterprise; and

(b)  your *annual turnover meets the *registration turnover threshold.

The registration turnover threshold for an entity (other than a non-profit entity) is $XXX.

As already determined above, then Entity's leasing activities constitute an enterprise for the purposes of section 9-20 of the GST Act. Therefore, it meets the requirement in paragraph 23-5(a) of the GST Act.

You meet the registration turnover threshold if either:

·         your 'current GST turnover' (your turnover for the current month and the previous 11 months) totals $XXX or more and the Commissioner is not satisfied that your 'projected GST turnover' (your total turnover for the current month and the next 11 months) is below the turnover threshold; or

·         your 'projected GST turnover' is at or above the turnover threshold.

In working out your projected GST turnover, you don't include amounts you receive for the sale of a capital asset or for any sale you made, or are likely to make, solely as a consequence of ceasing or substantially and permanently reducing the size of your business.

The property was the profit yielding subject of the Entity's enterprise and, therefore, a capital asset of the Entity. This means that the value of the sale of the property is disregarded when calculating the Entity's projected GST turnover.

As the only activity the Entity has been carrying on is leasing, aside from the sale of the Property, it is considered that the Entity's projected supplies would be less than $XXX after the sale of the capital asset. As such the Entity's projected GST turnover will not be at or above the turnover threshold therefore, the Entity will not meet the registration turnover threshold.

Given the Entity is not required to be registered for GST, the sale of the property will not be a taxable supply under section 9-5 of the GST Act.