Edited version of private advice

Authorisation Number: 1051647500573

Date of advice: 18 March 2020

Ruling

Subject: GST and sale of property

Question

Is the sale by the trustee for the Trust to the Purchaser of the Property a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax Act 1999 (GST Act)?

Answer

Section 9-5 of the GST Act provides the requirements for a taxable supply which are that you:

·        make a supply for consideration,

·        carry on an enterprise,

·        make a supply that is connected with the Indirect Tax Zone, and

·        are registered or required to be registered for GST.

In this case, the Trust is not registered or required to be registered for GST. As all the requirements listed above are not met the sale of the Property is not a taxable supply under section 9-5 of the GST Act.

This ruling applies for the following period:

1 July 2019 to quarter ending 30 June 2020

The scheme commences on:

1 March 2018

Relevant facts and circumstances

The trustees of the Trust are Mr and Mrs A (the Trustees).

The Trust was established in early 2018 and was registered with an ABN and TFN at this time.

The Trust was established with the intention of acquiring and holding property which the trust would use to provide short term tourist accommodation.

In Mid 2018 the Trust purchased a Property.

Prior to ownership by the Trust the previous use of the Property was retail/commercial.

The Property has never been a residential property used for residential accommodation.

At the time the Trust purchased the property it contained two buildings - structure X and structure Y.

Structure X consisted of a hall/open space. Structure Y contained a storeroom, multipurpose room with a kitchenette sink and open space room. In addition this structure included access to toilet facilities from the outside only.

The Trust purchased the Property with the intention of converting the two structures into two self-contained accommodation units for the running of a bed and breakfast business.

In Mid 2018 the Trust commenced planning, design and renovations to convert the Property into two council approved tourism self-contained accommodation studios.

Neither the Trust nor the Trustees have ever previously conducted an activity of property development.

The Trust applied for the change of use of the zoning to Tourism Accommodation with the local Council. This registered use is specifically aimed at short term accommodation for tourists visiting the State.

The Trust converted both buildings to council approved self-contained accommodation studios using a registered building designer and builder. All renovations have been undertaken to tourism accommodation standards.

As structure A originally had no facilities the Trust renovated structure A by adding a new bathroom, kitchenette and works, such as new electricals, bushfire rating works and insulation, to allow compliance with the current building codes. Other renovations in structure A included installation of air conditioning and heating and polishing floor boards.

Structure B already had a full bathroom and kitchenette sink but required minor renovations such as a stove and air conditioning plus some minor works to meet current building codes (bushfire rating work, insulation etc.).

There was already a gravel car park on the Property, which was retained for guests.

Other works shared between the two buildings was also undertaken including wifi installation, adding extra water tanks, moving the electricity to underground, adding bushfire tanks and fire hydrant.

The total cost of the renovations amounted to approximately $X including GST. The trustees funded the renovations by extending a mortgage held over their personal property (a farm).

In late 2018 the final sign off for completion of building works was received from the local Council.

In January 2019 the Trust commenced providing short term accommodation to guests.

The accommodation is listed on online websites and direct bookings from brochures can be made. Bookings are managed using a channel manager.

The Trustees look after all aspects of the business such as web design, bookkeeping, bookings, marketing, cleaning, purchasing consumables etc.

Marketing is through brochures, internet booking sites, website and social media.

The accommodation has been very popular with local and international tourists with excellent reviews, and occupancy was seasonal but appeared to exceed many other local accommodation operators.

The Trust is not registered for GST as its GST turnover is below $75,000.

For reasons unrelated to the business the trustees decided to sell the Property in late 2019. Relevantly due to the personal circumstances of the trustees, their private property (i.e. the farm) is impacted by drought conditions and to free up capital to pay their mortgage the trustees decided to sell the Property.

The Trust listed the Property for sale with a local real estate agent with a preference to sell the business as a "walk in walk out" arrangement.

The Trustees have had a few interested parties however have failed to sell the business as a going concern.

In early 2020 the Trust and a Purchaser entered into a contract for the sale of the Property for the price of $XX not including GST.

The costs incurred by the Trust in selling the Property amount to approximately $XXX.

Relevant legislative provisions

A New Tax System (Goods and Services Tax Act 1999 Section 9-5