Edited version of private advice

Authorisation Number: 1051850548123

Date of advice: 10 June 2021

Ruling

Subject: Goods and services tax and property

Question

Are you (X) required to be registered under 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:

XX Month 20XX to XX Month 20XX

The scheme commences on:

XX Month 20XX

Relevant facts and circumstances

You are a partnership. You are the registered proprietor of land being certificate of title folio identifier X, being known as X.

You acquired the property on X. There is a building, on the property, capable of use as a XXXXX. You were registered for GST from X.

You leased the property to X, in its capacity as trustee for the X. The trust operates the X from the property. The lease was for a fixed term of X months commencing XX Month 20XX and ending XX Month 20XX. The lease was not renewed and continues in hold over on a periodic basis. The trust acquired the lease solely to make taxable supplies of accommodation in commercial residential premises.

The trust is registered for GST.

The trustee for the trust, X, is owned by the X partners in the partnership. Each partner owns X% of the issued share capital of X.

Since X, you have reported annual GST-exclusive revenue from the lease of the property as follows:

•                    X for the year ended 30 June 20XX;

•                    X for the year ended 30 June 20XX; and

•                    X for the year ended 30 June 20XX

You will not receive any lease income for the year ending 30 June 20XX. The parties to the lease have agreed on this course of action for pragmatic reasons given the non-arm's length relationship. The occupancy of the XXXXX has been severely affected by the COVID-19 pandemic. The trust's business continues to be so affected primarily because of the complete lack of international tourists coming into Australia.

The XXXX, being located on X, has not experienced the same beneficial effects that X have enjoyed. The objective of the XXXX operator (the trust) is simply to cover its basic operating costs.

You do not carry on any other enterprise.

You sought expressions of interest in regard to the sale of the property from around X. This was when the partners (X) made their decision to retire as soon as practicable. X are now in their X. They intend to retire from any active business activities as a result of the COVID-19 pandemic and their age.

An offer to purchase the property was accepted by you. It was made pursuant to a X dated X. The property is expected to be sold for X.

Other than the property, you do not hold any other assets. You have no intention of acquiring any income producing assets or deriving revenue from any other activities after disposal of the property.

The enterprises operated through the partnership and trust (as described above) will end as soon as practicable.

Therefore, you expect your final business activity statement will be for the quarter ending X.

Subclauses X and X of the option agreement refer to an X. You may grant an X to an entity nominated by the purchaser of the property. This would allow the nominated entity X prior to the completion of the sale contract.

Going forward the total revenue from the property lease and X is below $75,000 in any particular 12 month period.

The options under the X have not been exercised. Arrangements are being made to commence the sale process, where either option will likely be exercised in the next X to X months. The completion of the sale contract is likely to occur X months thereafter.

The put and call option is not directly in connection with a financial supply (if any) made by the partnership. The partnership does not make financial supplies.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-20

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

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

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision

All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless otherwise specified.

All terms marked by an *asterisk are defined terms in the GST Act.

Requirement to be registered

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 registration turnover threshold, which is currently $75,000 for entities other than non-profit entities.

Section 195-1 provides that 'carrying on' an *enterprise includes doing anything in the course of the commencement or termination of the enterprise.

We will consider whether you are carrying on an enterprise.

Leasing enterprise

Leasing meets the definition of enterprise under section 9-20. Consequently, you are carrying on a leasing enterprise.

Furthermore, section 195-1 provides that 'carrying on' an enterprise includes doing anything in the course of the commencement or termination of the enterprise. It follows that the sale of the property is in the termination of your leasing enterprise. Therefore, you are still carrying on your leasing enterprise when selling the property.

However, if your GST turnover does not meet the registration threshold then you are not required to be registered.

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

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.

We note for your information that the income from the property lease and X will contribute towards your projected GST turnover. However, the revenue from the property lease and X is below $75,000 in any particular 12 month period.

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

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) provides information on the calculation of GST turnover. The meaning of 'capital asset' is discussed in paragraphs 31 to 36 of 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.

In this case, you held the property in order to derive lease income from letting the property to the trust. You did not acquire the property in order to derive income from its disposal. The property is therefore a capital asset. It follows then, that the disposal of the property will be excluded from the calculation of your projected GST turnover.

Your projected GST turnover is below $75,000. Your GST turnover does not meet the $75,000 registration turnover threshold.

Therefore, you are not required to be registered under section 23-5.

We note for your information that the supply of property will be taxable if you are registered at the time of settlement.