Edited version of private advice

Authorisation Number: 1051639878520

Date of advice: 28 February 2020

Ruling

Subject: Goods and services tax (GST) and sale of dwellings

Question

Will GST be payable on the sale of the remaining unsold new residential properties?

Answer

No.

Relevant facts and circumstances

Individual X and individual Y are not registered for GST as separate individuals or as a partnership.

You were the owners of property situated in Australia.

You decided a number of years ago that you would develop this property and a number of years ago you engaged a builder to demolish the dwelling that was located on the land, subdivide the land and construct a number of new dwellings on the land. Construction of the new residential properties was completed a number of years ago.

Your intention in undertaking the development was to retain all of the new properties as rental properties to form part of your retirement portfolio and you have leased them out. Due to hard financial times, you are struggling to meet all of your financial commitments and you sold one of the new residential properties, and will sell the remaining unsold new residential properties, to ease your financial difficulties. You decided on a certain date that you would sell one of the new residential properties. You subsequently decided that you would sell the remaining unsold new residential properties. You expect to sell the remaining unsold new residential properties within a certain time-frame.

You leased out one of the new residential properties (the first one that you sold) from the time of completion of construction of the current dwelling on that property to the time you sold it. You have leased out the remaining new residential properties from the time of completion of construction of the current dwellings on those properties to the current time.

You do not carry on any enterprise as separate individuals or as a partnership at other locations and have no plans to do so in the 12 month period beginning with the start of the month in which you settle on the sale of any of the remaining unsold new residential properties respectively.

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 40-35

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

Reasons for decision

Summary

GST will not be payable on your sale of any of the remaining unsold new residential properties, as you are not registered for GST and will not be required to be registered for GST when you sell these properties.

Detailed reasoning

GST is payable on a taxable supply.

An entity makes a taxable supply if it meets the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act (GST Act), which states:

You make a taxable supply if

(a)  you make a supply for *consideration; and

(b)  you make the supply in the course or furtherance of an *enterprise that you carry on; and

(c)  the sale is *connected with Australia; and

(d)  you are *registered or *required to be registered for GST.

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)

You will supply the remaining unsold new residential properties for consideration when you sell them. The selling prices are the consideration. Therefore, the requirement of paragraph 9-5(a) of the GST Act is met.

In accordance with paragraph 9-20(1)(c) of the GST Act, enterprise includes leasing out properties on a regular or continuous basis. You are carrying on a leasing enterprise from the remaining unsold new residential properties. Therefore, your sale of these properties will be supplies made in the course or furtherance of an enterprise that you carry on.

Your sales of the remaining unsold new residential properties will be connected with Australia, as these properties are located in Australia.

GST registration

An entity that carries on an enterprise is entitled to be registered for GST. However, an entity that carries on an enterprise is required to be registered for GST once their GST turnover meets the registration turnover threshold of $75,000 or more.

An entity reaches the registration turnover threshold if either:

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

An entity's current GST turnover and projected GST turnover includes gross enterprise income excluding (amongst other things) input taxed supplies.

When working out projected GST turnover, sales of capital assets are disregarded.

You are not required to include the rental income you have received for renting out any of the new residential properties when working out your current GST turnover and projected GST turnover as leasing out residential premises is an input taxed supply under section 40-35 of the GST Act.

Paragraphs 31 and 32 of Goods and Services Tax Ruling GSTR 2001/7 provide guidance on the meaning of capital assets. They state:

31. The GST Act does not define the term 'capital assets'. 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' and may be described as 'the business entity, structure or organisation set up or established for the earning of profits'

32. 'Capital assets' can include tangible assets such as your factory, shop or office, your land on which they stand, fixtures and fittings, plant, furniture, machinery and motor vehicles that are retained by you to produce income. 'Capital assets' can also include intangible assets, such as your goodwill.

Paragraphs 258 and 259 of MT 2006/1 assist in distinguishing between trading assets and investment (capital) assets. They state:

258. United Kingdom cases categorise assets as either trading assets or investment assets. Assets purchased with the intention of holding them for a reasonable period of time, to be held as income producing assets or to be held for the pleasure or enjoyment of the person, are more likely not to be purchased for trading purposes.

259. Examples of investment assets are rental properties, business plant and machinery, the family home, family cars and other private assets. The mere disposal of investment assets does not amount to trade.

In working out your projected GST turnover at the time you sell any of the remaining unsold new residential properties, you would disregard these sales, as these properties are capital assets and will remain capital assets up to the time you sell them. We consider that you have held these properties as capital assets as:

• you retained them as part of your retirement portfolio to produce rental income
• you have held these properties for a reasonable period of time as intended
• you are selling these properties due to unforeseen financial difficulties

You do not carry on any enterprise as separate individuals or as a partnership at other locations and have no plans to do so in the 12 month period beginning with the start of the month in which you settle on the sale of any of the remaining unsold new residential properties respectively.

You projected GST turnover at the time of sale of any of the remaining unsold new residential properties will be zero. Therefore, as you will not have GST turnover of $75,000 or more when you sell these properties, you will not be required to be registered for GST at those times.

As you are not registered for GST and will not be required to be registered for GST when you sell any of the remaining unsold new residential properties, GST will not be payable on your sales of these properties.

You will need to notify the purchasers of the remaining unsold new residential properties that the purchasers are not required to withhold GST from the purchase price. See enclosed fact sheet, GST at settlement, for more information about this requirement