Edited version of private advice

Authorisation Number: 1051860490116

Date of advice: 1 July 2021

Ruling

Subject: GST and sale of new residential premises

Question

Is the sale of the new residential premises by the Trustee a taxable sale under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the sale of the new residential premises by the Trustee is a taxable sale under section 9-5 of the GST Act as the Trust will be required to register for GST under section 23-5 of the GST Act when selling the premises.

Relevant facts

You are the Trustee of a trust that is currently not registered for GST.

You derive investment income from bank interest, dividends and rent from a car park which you own.

In 20xx you purchased a vacant land located in Australia. Your intention for purchasing the vacant land was to build residential premises when funds are available and rent the residential premises.

The building of the premises started in September 20xx and was completed in June 20xx.

You did not take any loan for the purchase of the land and construction of the premises.

You went to list the new residential premises for rent with a real estate agent. The real estate advised you should sell the premises as prices for premises are very high and rental income is not.

From the advice from the real estate agent you have decided to sell the residential premises since it is your best interest to capitalise on the booming market.

The premises are expected to be sold in 20xx and the expected price for the sale of the residential premise would be above AU$75,000.

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 9-20

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

Reasons for decision

Note: Where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in section 195-1 of the GST Act.

Detailed reasoning

GST is payable on a taxable supply. A supply is a taxable supply under section 9-5 of the GST Act if:

a)    the supply is for consideration; and

b)    the supply is made in the course of the enterprise carried on by the supplier; and

c)    the supply is connected with Australia; and

d)    the supplier is registered or required to be registered for GST.

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

Based on the information given you satisfy paragraphs (a) to (c) of section 9-5 of the GST Act as:

a)    the sale of the new residential premises will be for consideration;

b)    when you purchased land, built a residential premises for sale after its construction you are considered to carry an isolated real property development enterprise in the form of an adventure or concern in the nature of trade under paragraph 9-20(1)(b) of the GST Act. The sale of the new residential premises will be made through that property development enterprise.

c)    The sale of the residential premises will be connected with Australia as the premises are located in Australia.

The sale of the new residential premises is neither an input taxed supply nor a GST-free supply.

We will now consider if you will be required to be registered for GST for the purpose of paragraph 9-5(d) of the GST Act.

GST registration

Under section 23-5 of the GST Act you are required to be registered for GST if you are carrying on an enterprise and your annual turnover reaches the GST registration threshold which currently is AU$75,000 (AU$150,000 for non-profit organisation).

You are not a non-profit organisation and therefore the GST threshold of A$75,000 applies to you to determine if you are required to be registered for GST.

You reach the GST turnover threshold if either:

• Your current turnover which is your turnover for the current month and the previous 11 months totals AU$75,000 or more; or
• Your projected GST turnover which is your total turnover for the current month and the next 11 months is likely to be AU$75,000 or more.

When working out your projected annual turnover you do not include under section 188-25 of the GST Act:

a)    amounts you receive for the sale of a business asset such as the sale of a capital asset; and

b)    any sale you make, or are likely to make, solely as a consequence of ceasing to carry on an enterprise, or substantially and permanently reducing the size or scale of an enterprise.

Is the sale of the new residential property a trading asset or capital asset?

Your intention when purchasing the land was to build residential premises on the land and rent the premises after its construction. In this instance you will be holding a capital asset when renting the premises and carrying on a leasing enterprise.

Based on the advice of the real estate agent you decide to sell the newly built residential premises straight away after its construction in order to capitalise on the high prices of the booming market for supply of residential premises. In this instance, your motive for holding a capital asset has changed to a trading asset since according to paragraph 244 in Miscellaneous Tax Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number, transactions that are for an adventure or concern in the nature of trade that includes a commercial activity but does not amount to a business are of a revenue nature.

By holding the new residential premises for a very short time after its construction in order to gain a better price, the new premises are a trading asset for the isolated property development enterprise you carry on.

Are you required to be registered for GST when selling the trading asset?

Current turnover at the time of sale

Currently you are deriving rental income from a car park that you are leasing and you are not registered for GST.

At the time the sale of the new residential premises is done your current annual turnover will be above the GST registration threshold of AU$75,000 since the sale of the premises will be above A$75,000 and the rental income from the car park has to be included as well.

Projected turnover at the time of sale

Your projected GST turnover which is your total turnover for the current month and the next 11 months.

Your projected turnover at the time of sale will be above the GST registration threshold as you will include the income received from the sale of the premises and rental income from the car park when calculating your projected annual turnover.

Since your current and projected annual will be above the GST registration threshold of AU$75,000 at the time the premises are sold, you will be required to collect GST.

Summary

Your sale of the residential premises will be a taxable sale as you will be required to register for GST when selling the premises.