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Edited version of private advice
Authorisation Number: 1051625955349
Date of advice: 29 January 2020
Ruling
Subject: GST and sale of real property
Question
Will the sale of the back property be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
No.
This ruling applies for the specified period.
The scheme commences on the specified date.
Relevant facts and circumstances
· You are an entity.
· You purchased a Property located in Australia.
· The Property comprised land and a house at the time of settlement.
· Since acquisition of the Property, you have rented out the Property for residential purposes.
· You have subsequently subdivided the Property into two lots (front property and back property).
· The original house is on the front property.
· You have constructed a townhouse on the back property.
· You have rented out the back property for residential purposes.
· Currently, both the back property and front property continue to be rented out for residential purposes.
· You and a purchaser have signed a Contract of Sale for the sale and purchase of the back property for the specified price.
· You are currently not registered for the goods and services tax (GST).
· Apart from the leasing of the residential premises:
- you currently do not carry on any other enterprise or make any other supplies; and
- you do not plan to carry on any other enterprise or make any other supplies in the next twelve months following the sale of the back property.
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 subsection 188-10(1), and
A New Tax System (Goods and Services Tax) Act 1999 section 188-25.
Reasons for decision
GST is payable on taxable supplies.
You make a taxable supply if you meet the requirements of 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)
GST registration
Section 23-5 of the GST Act provides that an entity is required to be registered for GST purposes if both of the following requirements are met:
· it is carrying on an enterprise; and
· its GST turnover meets the registration turnover threshold (which is currently $75,000 for entities other than non-profit entities).
Registration turnover threshold
Subsection 188-10(1) of the GST Act 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.
In calculating your GST turnover under Division 188 of the GST Act certain supplies are excluded. Section 188-25 of the GST Act 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.
In your case, the back property has been used by you to derive rental income. We consider that your sale of the back property will be a transfer of ownership of a capital asset by you. Therefore, the sale of back property will be excluded from the calculation of your projected GST turnover.
On the facts provided, your GST turnover will not meet the registration turnover threshold at the time of settlement. Consequently, you will not satisfy all the requirements of section 23-5 of the GST Act and you will not be required to be registered for GST at the time of the settlement of the sale of the back property.
Therefore, the requirement of paragraph 9-5(d) of the GST Act will not be met.
As not all of the requirements of a taxable supply under section 9-5 of the GST Act will be met at the time of sale, the sale will not be a taxable supply.
Consequently, GST will not be payable on the sale of the back property.