Edited version of private advice

Authorisation Number: 1051647596355

Date of advice: 16 March 2020

Ruling

Subject: Goods and services tax and property

Question

Is your sale of xxxxx 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 following period:

1 July 2019 to 30 June 2023

The scheme commences on:

1 July 2019

Relevant facts and circumstances

You (xxxxxx) are not registered for goods and services tax (GST). In xxxx you acquired xxxx. It is a xxx acre property with a house already on it.

Your house and reasonable curtilage occupies xx acres of the property. The house is built for residential accommodation with physical characteristics including bedroom(s), bathroom(s), toilet(s) and kitchen. The house provides basic living facilities and shelter.

xxxxx is registered for GST.

You allowed xxxx to breed horses and cattle on xx acres of the property. xxxx carries on their breeding enterprise as a sole trader. The horses are sold for racing purposes. The cattle are bred for sale.

They also train race horses as a sole trader. Some of the people they sell race horses to get them to train their horses. You allowed xxxx the use of xx acres of your property to carry on their race horse training enterprise.

You do not charge xxxx rent for the use of the property as a sole trader. However, xx pays the mortgage over the property.

You entered into a contract to sell the property. The contract will settle on xx.

xx has been breeding horses and cattle, on the xx acres of property, for at least the period of five years preceding the supply of the property.

The purchaser intends to carry on a business of maintaining horses for the purpose of selling them. This will occur over the xx acres of property previously used by xx to breed horses and cattle.

You do not carry on any other enterprises.

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 paragraph 9-5(a)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-5(b)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-5(c)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-5(d)

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

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

A New Tax System (Goods and Services Tax) Act 1999 paragraph 38-480(a)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 38-480(b)

A New Tax System (Goods and Services Tax) Act 1999 subsection 40-65(1)

A New Tax System (Goods and Services Tax) Act 1999 section 72-5

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-10(1)

A New Tax System (Goods and Services Tax) Act 1999 section 188-25

Reasons for decision

In this ruling:

·        unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

·        all terms marked by an *asterisk are defined terms in the GST Act

·        all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on ato.gov.au

Section 9-40 provides that you must pay GST on any taxable supply that you make.

Under section 9-5, 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.

xx acres for the house and curtilage

Subsection 40-65(1) states:

A sale of *real property is input taxed, but only to the extent that the property is *residential premises to be used predominantly for residential accommodation (regardless of the term of occupation).

The x acres of property comprises 'residential premises to be used predominantly for residential accommodation'. Therefore, the sale of the x acres is input taxed. It is not a taxable supply. The sale of the x acres is not subject to GST.

xx acres for breeding horses and cattle

Section 38-480 states:

The supply of a freehold interest in, or the lease by an *Australian government agency of or the *long term lease of, land is GST- free if:

(a) the land is land on which a *farming business has been *carried on for at least the period of 5 years preceding the supply; and

(b) the *recipient of the supply intends that a farming business be carried on, on the land.

Your supply of the xx acres satisfies section 38-480. Therefore, the supply is GST-free. It is not a taxable supply. The sale of the xx acres is not subject to GST.

xx acres used for training horses

For your supply of the xx acres to be taxable it must satisfy all the requirements of section 9-5. You will not make a taxable supply if you fail to meet one of the requirements of section 9-5.

We now consider whether you satisfy paragraph 9-5(d).

Requirement to be registered

As you are not registered for GST, we will consider whether you are required to be registered for GST.

Section 23-5 provides that you are required to be registered for GST if:

·        you are carrying on an enterprise, and

·        your GST turnover meets the GST registration turnover threshold, which is currently $75,000 for entities other than non-profit entities.

You may be carrying on a leasing enterprise.

However, if your GST turnover does not meet the GST registration turnover threshold then you are not required to be registered. This being the case, you will not satisfy section 23-5.

Next, we will consider whether your GST turnover meets the GST registration turnover threshold.

GST registration turnover threshold

Subsection 188-10(1) 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.

The registration turnover threshold applicable to you is $75,000.

It is necessary to determine whether your projected GST turnover meets the threshold. You are required to be registered for GST if your projected GST turnover is at or above $75,000.

Your projected GST turnover is the sum of the values of all supplies made in a particular month plus the next 11 months.

Supplies that are disregarded when working out your projected GST turnover include:

·        supplies that are input taxed

·        supplies that are not for consideration (and are not taxable supplies under section 72-5 of the GST Act)

·        supplies that are not made in connection with an enterprise that you carry on

·        supplies that are not connected with Australia

As discussed above, your supply of x acres of residential premises is input taxed under subsection 40-65(1). Such supplies are disregarded when working out your projected GST turnover.

In addition, section 188-25 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.

Capital asset

The meaning of 'capital asset' is discussed in paragraphs 31 to 36 of Goods and Services Tax Ruling GSTR 2001/7 Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover (GSTR 2001/7).

The GST Act does not define the term "capital asset". However, GSTR 2001/7 explains that 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. They may be described as the business entity, structure or organisation set up or established for the earning of profits.

Capital assets are to be distinguished from revenue assets. A revenue asset is an asset whose realisation is inherent in, or incidental to, the carrying on of a business. If the means by which you derive income is through the disposal of an asset, the asset will be of a revenue nature rather than a capital asset even if such a disposal is an occasional or one-off transaction. Therefore, the character of an asset must be determined at the time of expected supply.

You held the xx acres in order that xx is able to breed horses and cattle. Furthermore, you allowed xx the use of x acres of your property to carry on their race horse training enterprise. You did not acquire the xx acres and xx acres of property in order to derive income from its disposal. The xx acres and xx acres of property are therefore capital assets. It follows then, that the disposal of the xx acres and xx acres of property is excluded from the calculation of your projected GST turnover.

You do not carry on any other enterprises. Your projected GST turnover will be below $75,000. Your GST turnover will not meet the $75,000 GST registration turnover threshold. Therefore, you are not required to be registered under section 23-5. You do not satisfy paragraph 9-5(d). Accordingly, the xx acres of property will not be a taxable supply. GST will not be payable on the sale.

In summary, GST will not be payable on the sale of the entire property.