Edited version of private advice

Authorisation Number: 1051701052301

Date of advice: 9 July 2020

Ruling

Subject: GST and registration

Question

Is the partnership required to be registered for GST pursuant to section 23-5 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 20XX - 30 June 20XX

The scheme commences on:

1 April 20XX

Relevant facts and circumstances

The Partnership is registered for GST.

The Partnership operates a residential over 55's independent living operation. This is a caravan park that operates under a particular Act. The Park is licenced to operate x permanent sites for mobile homes / manufactured homes (commercial accommodation).

For x Sites, the occupant owns the house and leases the land on which the home sits. The home may be a manufactured home, mobile home or a caravan and annex. For x Sites the house is owned by the Partnership and the house and the site is leased to the occupier. The remaining sites are currently either vacant land or have mobile homes or caravan and annex which are to be removed in the future to make way for new homes. Two of these sites are occupied and the occupier is paying a fortnightly rent.

The supplies of commercial accommodation are treated as input taxed. The Partnership separately charges each resident for electricity usage based on the taxpayer's cost with the amount charged subject to GST. The turnover for the electricity supply is currently less than $75,000 per annum.

A sale was proposed of the underlying land (the Park) and business operations.

The Partnership undertook an 'Expression of Interest Period' in xx/yyyy and upon completion of this period, Entity B was deemed the preferred bidder for the purchase of the freehold business.

The price offered was a reflection of the profitability of the business and the market rate of return on the investment.

The allocation of the agreed price of $X plus the additional price adjustment of $X was apportioned as follows:

(1)          Land & Buildings - $X

This was the Vendor's assessment of the value of the land and improvements on the land.

(2)          The Value of the Business - $X

This represented the goodwill and plant & equipment associated with the day to day operation of the business, being the agreements and general plant and equipment and office equipment detailed in the Business Sale Agreement.

The additional price adjustment of $X relates to negotiated additional goodwill on the potential input taxed income generated from the loan/lease sites when those residents may ultimately depart the Park.

After the sale, the Partnership will no longer carry on business activities and as a result will no longer have any turnover.

The Partnership proposes to deregister for GST before the sale settles.

The Partnership currently adopts the input taxed treatment for its accommodation. It has opted out of Division 87 of the GST Act (under section 87-25) and as a result its accommodation is input taxed under section 40-35 of the GST Act. The choice to treat the Partnership's supplies of long-term accommodation as input taxed was made with effect from xx/yyyy.

In the early years including yyyy to yyyy GST income would have been derived from the following activities - sales from the convenience shop, overnight stays from the tourist cabins, sales of the cabins when removed from site, supply of electricity and gas to site and visitor's fees. Over the years as the business gradually changed, the store was closed, the cabins were all removed and sold (as taxable supplies), gas was no longer delivered to site as replacement bottles (outside supply by refilling bottles by Elgas) and the business evolved into what it is today.

The sale of new homes and the resale of existing homes is undertaken by a related entity and the sales amounts and commissions are subject to GST.

No input tax credits have been claimed for inputs related to the rental of the respective properties nor has GST been charged on rents. Any adjustments for previous input tax credits will be made on the final BAS if deregistration occurs.

The interest in the Park was acquired under a contract dated xx/yyyy as a GST going concern.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 section 87-25

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

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 188-20

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 legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act.

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

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

(a)          you are carrying on an enterprise, and

(b)          your GST turnover meets the registration turnover threshold (currently $75,000 unless a non-profit body).

The Partnership is carrying on an enterprise of property leasing.

Subsection 188-10(1) provides that you have a GST turnover that meets the registration turnover threshold if:

(a)          your current GST turnover is at or below $75,000 and the Commissioner is not satisfied that your projected GST turnover is above $75,000, or

(b)          your projected GST turnover is at or below $75,000.

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.

Paragraphs 188-15(1)(a) and 188-20(1)(a) provide that input taxed supplies are disregarded when calculating your current and projected turnovers respectively. The Partnership has treated its supplies of long-term commercial accommodation as input taxed since xx/yyyy. Therefore, the values of these supplies are not included in the calculations of 'current GST turnover' or 'projected GST turnover' of the Partnership.

The values of the supplies of water and electricity made by the Partnership are less than $75,000 per annum.

Given the above, the Partnership's current GST turnover is below $75,000 section 188-25 provides further, that when calculating your projected GST turnover, you should disregard any supply made or likely to be made by you:

·                     by way of transfer of ownership of a capital asset of yours, and

·                     by you solely as a consequence of ceasing to carry on an enterprise or substantially and permanently reducing the size or scale of an enterprise.

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 (GSRT 2001/7) discusses what is regarded as a 'capital asset' at paragraphs 31 to 36.

Whilst not specifically defined for GST purposes, the term 'capital assets' generally refers to those assets that make up the profit yielding subject of an enterprise and 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.

Given the facts in this case we consider the sale of the Park will constitute the transfer of a capital asset for the purposes of section 188-25 and will therefore be disregarded when calculating your projected GST turnover.

As the proceeds from the sale of the Park are disregarded when calculating your projected GST turnover, your projected GST turnover will be below the GST registration turnover threshold and you are not required to be registered in accordance with section 23-5.