Edited version of private advice

Authorisation Number: 1051651584385

Date of advice: 27 March 2020

Ruling

Subject: GST and sale of commercial property

Question 1

Are you required to register for GST pursuant to section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No

Question 2

Are you making a taxable supply pursuant to section 9-5 of the GST Act when you sell property situated at a specified location?

Answer

No

This ruling applies for the following period(s)

1 July 20XX - 30 June 20XX

The scheme commences on

1 July 20XX

Relevant facts and circumstances

You are not currently registered for GST.

You were registered for GST for the period dd/mm/yyyy to dd/mm/yyyy.

In yyyy you purchased a commercial property situated at a specified location (the Property).

The price of the Property included a GST amount of $xx,xxx

You intended to lease the Property.

In mm/yyyy you abandoned your original intention to lease the Property and decided to conduct your own business of operating a gift shop from the Property.

In mm/yyyy you ceased trading.

You intend to sell the Property.

You do not carry on any other enterprise as defined by the GST Act.

Your anticipated income for the financial year ending 30 June 20XX is $x,xxx being generated by the sale of residual stock.

You do not reside at the Property. The Property does not contain kitchen facilities and is not suitable for use as a residence.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 9-5

Section 23-5

Subsection 188-10(1)

Section 188-15

Section 188-20

Section 188-25

Reasons for decision

Note: In this reasoning, unless otherwise stated,

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

·         reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

Question 1 - GST registration

Section 23-5 provides that you are required to register for GST if you are carrying on an enterprise and your GST turnover meets the GST registration turnover threshold (currently $75,000).

The term 'carrying on' an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

In this case you carry on an enterprise of operating a gift shop. Activities such as the sale of residual stock and the commercial premises are considered to be transactions done in the course of carrying on your enterprise.

The next issue to consider is whether your GST turnover is $75,000 or more.

Subsection 188-10(1) provides that your GST turnover will meet the registration turnover threshold if:

(a)  your current turnover is at or above the turnover threshold and the Commissioner is not satisfied that your projected GST turnover is below the turnover threshold; or

(b)  your projected GST turnover is at or above the turnover threshold.

Your 'current GST turnover' is defined in section 188-15 as the sum of the values of all of your supplies made in a particular month and the preceding 11 months.

Your 'projected GST turnover' is defined in section 188-20 as the sum of the values of all of your supplies made in a particular month and the following 11 months.

Section 188-25 provides that in calculating your projected GST turnover, you disregard any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours.

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 discusses this issue.

The meaning of 'capital assets' is discussed at paragraphs 31 to 36 of GSTR 2001/7:

Meaning of 'capital assets'

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.

33. Capital assets are 'radically different from assets which are turned over and bought and sold in the course of trading operations'. An asset which is acquired and used for resale in the course of carrying on an enterprise (for example, trading stock) is not a 'capital asset' for the purposes of paragraph 188-25(a).

34. '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'.

35. 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. Isolated transactions are discussed further at paragraphs 46 and 47 of this Ruling.

36. Over the period that an asset is held by an entity, its character may change from capital to revenue or from revenue to capital. For the purposes of section 188-25 the character of an asset must be determined at the time of expected supply.

Taking into account the facts of this case we consider the sale of the Property would constitute the transfer of a capital asset for the purposes of section 188-25 and is therefore disregarded when calculating your projected GST turnover. The Property was used to generate the trading income in the operation of your retail gift shop.

Your turnover from the sale of residual stock is anticipated to be approximately $x,xxx for the financial year ending 30 June 2020 and you do not carry on any other business or enterprise. As such, your projected GST turnover will be less than $75,000. Consequently, you are not required to register for GST in accordance with section 23-5.

Question 2 - taxable supplies

Section 9-5 provides that 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 to the indirect tax zone (Australia); and

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

However, the supply will not be a taxable supply to the extent the supply is GST-free or input taxed.

In this case, the sale of the Property will be made for consideration, is located in Australia and, as discussed above, will be made in the course of an enterprise that you carry on. However you are neither registered nor required to be registered for GST.

As a result, you will not be making a taxable supply as defined in section 9-5 when you sell the Property. Consequently, GST will not apply to the sale of the Property.