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Edited version of private advice
Authorisation Number: 1051608421475
Date of advice: 15 November 2019
Ruling
Subject: Sale of residential rental property and requirement to register for GST
Question
Am I required to be registered for GST due to the sale of our residential rental property?
Answer
No, you are not required to be registered for GST due to the sale of your residential rental property
This ruling applies for the following period:
1 September 2019 to 30 September 2020
The scheme commences on:
1 September 2019
Relevant facts and circumstances
(1) You are not registered for goods and services tax (GST).
(2) You are the registered owner of a land and decided to demolish the dwelling located on land, subdivide and build three residential properties.
(3) You advised:
(a) You always intended the three residential properties would be rented and retained to form part of your retirement portfolio and that you never intended to sell any of the these properties.
(b) All properties have been rented since construction was completed.
(c) Recently, you have decided to sell one of the properties.
(d) You have earned a joint combined rental income of less than $75,000 per year in the properties.
(e) You agree that you carrying on an enterprise which involves the rental of the three properties.
Relevant legislative provisions
Section 9-20 of the GST Act
Section 23-5 of the GST Act
Section 23-10 of the GST Act
Subdivision 40-C of the GST Act
Division188 of the GST Act
Section 188-25 of the GST Act
Reasons for decision
'Carrying out an Enterprise'
We are agree that you are carrying out an enterprise which includes the building/construction and rental of residential properties.
GST Turnover threshold tests:
An entity that carries out an enterprise can choose to register for GST. However an entity that carries out an enterprise is required to be registered for GST once their 'GST turnover' meets the registration turnover threshold of $75,000 or more.
Our ATO website states:
Working out your GST turnover
Your GST turnover is your gross business income (not your profit), excluding any:
· GST included in sales to your customers
· sales that aren't for payment and aren't taxable
· sales not connected with an enterprise you run
· input-taxed sales you make
· sales not connected with Australia.
GST turnover threshold
You reach the GST turnover threshold if either:
· your 'current GST turnover' (your turnover for the current month and the previous 11 months) totals $75,000 or more (if you are not a non-profit organisation)
· your 'projected GST turnover' (your total turnover for the current month and the next 11 months) is likely to be $75,000 or more (if you are not a non-profit organisation).
...
When working out your projected GST turnover, don't include:
· amounts you receive for the sale of a business asset (such as the sale of a capital asset)
· any sale you make, or are likely to make, solely as a consequence of ceasing to carry on an enterprise, or substantially and permanently reducing the size or scale of an enterprise.
Applying the above to your circumstances -:
· You are not required to include the rental income you have received for renting the three properties when you work out the 'current turnover' and 'projected turnover' as the rental income relates to supplies which are input taxed supplies under subdivision 40-C of the GST Act.
· You do not meet or exceed the 'Current GST Turnover' as you only received income from renting out residential properties in the same month and prior 11 months before you made the decision to sell one of the properties.
· You can disregard the amount you anticipate to receive from the sale of one of the rental properties when you work out your 'Projected Turnover' as:
- We are satisfied each of the three rental properties are capital assets as you intended to retain the rental properties as part of your retirement portfolio and did not intend to sell any of these properties in the regular course of carrying out your enterprise.
- Additionally, the intended sale of one of the rental properties would 'substantially and permanently' reduce the size and scale of your enterprise.
Our Conclusion:
You can choose to be registered for GST. However, you are not required to be registered for GST as the amounts you receive from the rental of your three properties and also the amount you project you will receive from the intended sale of one of the rental properties are not included in working out whether the threshold tests which determine whether you are required to be registered for GST.