Edited version of private advice

Authorisation Number: 1051856879196

Date of advice: 30 June 2021

Ruling

Subject: GST and sale of shop premises

Question

Is GST payable on the sale of your interest in the shop premises located in Australia, to the tenant?

Answer

No. The sale of your interest in the shop premises to any entity will not be subject to GST. This is because you will not make a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999. The sale will not be taxable, for GST purposes, because you are not registered or required to be registered for GST.

You do not meet the compulsory GST registration turnover threshold of $75,000 as your projected GST turnover is under $75,000. The sale of your interest in the shop, being a capital asset of yours, is excluded from your projected GST turnover. Rent from houses is excluded from current GST turnover and projected GST turnover.

The sale of your interest in shop premises to the tenant is not a supply of a going concern as you cannot transfer to the tenant the benefit of the lease covenants, which you enjoy as lessor. However, as explained above, the sale of your interest in the shop will still not be subject to GST as you are not registered or required to be registered for GST.

We consider that you and your relative who owns the other 50% share in the shop premises in question (X) are in a partnership, for GST purposes, as you and X are jointly in receipt of 'ordinary income' (the rental income) from the shop premises in question. However, this does not necessarily mean that the partnership is carrying on an enterprise.

A partnership is treated as a separate entity for GST purposes and is capable of making supplies for GST purposes. A supply made by a partner in their capacity as a partner in the partnership is considered to be a supply made by the partnership, for GST purposes.

After weighing up all the relevant factors in Goods and Services Tax Ruling GSTR 2004/6, we do not consider that a single leasing enterprise is carried on from the shop premises through a partnership between you and X and therefore we do not consider that you and X will sell your respective interests in the shop premises on behalf of the partnership. Hence, we do not consider that the partnership will make a single supply of the entire shop premises, for GST purposes, when you and X sell your respective shares in the shop premises

We consider that you and X each carry on a separate leasing enterprise from the shop premises, for GST purposes, and therefore, each of you will, on your own behalf, be making a separate supply of a 50% interest in the shop premises to the buyer, for GST purposes.

The issue of whether X has a GST liability on the sale of their interest in the shop premises is a separate issue to the issue that this ruling rules on. X may obtain a separate ruling on whether they have a GST liability on the sale of their interest in the shop.

Relevant facts and circumstances

You are not registered for GST.

You and your relative (X) jointly own retail premises (shop premises) located in Australia as tenants in common. You and X each have a 50% interest in the shop premises. You and X acquired your respective shares at different times via inheriting them. The whole shop premises were at some time in the past owned by a second relative.

You and X lease out the shop, to a business operator, under a single lease agreement. The rent is less than $75,000 a year. You and X are each entitled to 50% of the rent.

You and X are seriously considering selling the shop premises to the tenant. You have decided that you would like the shop to be sold, but X is not sure whether they want to sell.

X is still trying to decide how much money they want the buyer to pay for the shop premises.

You and X propose to transfer, to the tenant, your interests in the current lease.

It was agreed between the co-owners in the past that either owner could have sold their 50% interest in the shop premises without the whole shop premises having to be sold.

There was not much that the co-owners have done in terms of enhancing the value or return on their investments in the shop premises - just normal maintenance was done by the co-owners. The tenant has done some renovations - mainly flooring.

You and X do not do partnership income tax returns. You and X do not have a partnership TFN or ABN.

There was no explicit agreement between you and X to form a partnership or carry on a leasing enterprise jointly.

The intention of you and X was to operate separately as far as the activity of leasing the shop premises is concerned.

The leasing activity you and X carry on from the shop is for the mutual benefit of both of you.

There was no agreement that specified mutual rights and obligations of the co-owners in relation to the shop leasing activity.

For most of the period you and X have owned the shop, X has been managing the leasing activity conducted from the shop, such as organising the lease and doing maintenance, on X's and your behalf. But since recently, due to X 's old age you have been more involved in the management of the leasing activity on your and X's behalf.

A single rent amount is paid each month into a joint bank account held by you and X, and you then disburse the monies 50/50 between yourself and X.

Expenses of the leasing activity conducted from the shop premises are paid from the joint bank account.

Liabilities relating to the leasing activity conducted from the shop premises are paid jointly by you and X.

Each co-owner meets only their own share of the total liabilities in relation to the shop premises.

You own two houses which you lease out. You plan to buy a third house in future for the purpose of leasing out.

You have no plans to carry on enterprise activities in future other than the activities set out above.

X does not own any properties, or have a part interest in any properties, apart from the shop premises in question and X's home.

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 section 23-5

A New Tax System (Goods and Services Tax) Act 1999 section 38-325

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