Edited version of private advice

Authorisation Number: 1051877774987

Date of advice: 2 August 2021

Ruling

Subject: GST and property subdivision

Question

Will the Commissioner cancel your GST registration from dd/mm/yyyy pursuant to section 25-55 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes

Relevant facts and circumstances

You formed a partnership (the Partnership) and have been registered for GST since 1 July 2000.

The Partnership operates a farming enterprise in Australia.

You acquired the Property in YYYY and have operated your enterprise on the Property since that date.

The operations include agriculture.

Your turnover for has not exceeded $75,000 nor do you expect it to exceed $75,000 in the next 12 months.

The Partnership does not intend to continue the farming business and has been progressively reducing its agricultural activities with a consequential reduction in revenue of the business.

The only assets currently held by the Partnership are some minor farming equipment and sheds. The Partnership has no intention of acquiring any new income producing assets or derive revenue from any other activities after the disposal of the Property.

The Partners were approached by a developer who offered to purchase the Property with a delayed settlement of X years.

The offer to purchase the Property was accepted and it is currently under an exchanged contract of sale. A copy of the Contract was supplied to the ATO for the purposes of this private ruling.

Settlement will occur in X tranches over a number of years. All activities on the land in relation to the subdivision will be undertaken by ABC Pty Ltd (Developer). No physical activities such as fencing, landscaping, roads or connecting utilities will be undertaken on the Land prior to the supply of the Lots to the Developer.

The Property will be sold in a subdivided form known as proposed Lots X to Z. Lot Z contains a residence and will be sold with vacant possession.

Currently subdivision approval has not been obtained and so the settlement of the first Lot has not occurred as yet.

The Partnership is seeking to cancel it GST registration with effect from dd/mm/yyyy, with its mm/yyyy quarterly BAS being its final BAS.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) Section 23-5,

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) Section 25-55,

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

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) Section 195-1.

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

Under subsection 25-55(1), the Commissioner must cancel an entity's GST registration if:

(a)  it applies in the approved form to cancel its GST registration and

(b)  the entity has been registered for at least 12 months and

(c)   the Commissioner is satisfied that the entity is not required to be registered.

You have been registered for GST since dd/mm/yyyy satisfying paragraph 25-55(1)(b).

The next issue to consider is whether you are required to be registered for GST.

Under section 23-5, an entity is required to be registered if:

(a)  it is carrying on an enterprise; and

(b)  its GST turnover meets the registration turnover threshold.

For entities, other than non-profit bodies, the registration turnover threshold is $75,000.

Enterprise

The definition of 'carrying on' an enterprise in subsection 195-1 includes doing anything in the course of the commencement or termination of the enterprise.

It is accepted that the Partnership is and will be carrying on an enterprise of farming until the sale of the last lot albeit in the process of winding down its activities.

Therefore, paragraph 23-5(a) is satisfied.

We have also considered whether, in conjunction with the faming enterprise, the Partnership is carrying on a further enterprise of property development in conducting activities related to the subdivision of the Property and subsequent sale of the subdivided lots.

We have reviewed the information you have supplied including the terms and conditions of the Contract and consider that the activities undertaken in relation to the subdivision of the Property do not amount to a new enterprise of property development.

Turnover

The next issue to consider is whether the turnover of the Partnership is $75,000 or more.

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 $75,000 and the Commissioner is not satisfied that your projected GST turnover is less than $75,000; or
• your projected GST turnover is at or above $75,000.

'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.

'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.

Given the facts in this case, the 'current GST turnover' of the Partnership will not meet the registration turnover threshold of $75,000.

In reference to 'projected GST turnover', section 188-25 provides that you exclude the transfer of capital assets when you calculate your projected turnover.

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 provides commentary on what is meant by 'capital assets'.

Paragraphs 31 to 35 of GSTR 2001/7 state:

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.

In this case you acquired the Property in 19XX. The Property has been used since that date to generate farming revenue.

We consider that the characterisation of the Property as a capital asset is appropriate in this case.

Therefore, proceeds from the sale of the Property are excluded in the calculation of the Partnership's 'projected GST turnover' pursuant to section 188-25.

Given the Partnership's projected turnover (excluding turnover from the sale of the Property) for the next 12 months is in the order of $X.00 to $X.00 your projected GST turnover will not meet the $75,000 registration turnover threshold.

For the reasons set out above we consider that you are not required to be registered for GST as neither your current nor projected turnover exceed the GST registration threshold. Thus paragraph 23-5(b) has not been satisfied which in turn will fulfil the criteria of paragraph 25-55(1)(c).

Conclusion

As discussed above, paragraphs 25-55(1)(b) and 25-55(1)(c) have been satisfied. Therefore upon application requesting cancellation of your GST registration in the approved form, the Commissioner must cancel your GST registration pursuant to section 25-55.

Other relevant comments

Subsection 25-60(1) provides that the Commissioner must decide the date at which the cancellation of your registration takes effect.

Practice Statement Law Administration PS LA 2011/8; The registration of entities sets out the policy and procedures to be followed on a range of issues relating to the registration of entities, including cancelling GST registration.

In respect to the date of effect of the cancellation of GST registration, paragraphs 82 and 83 of PS LA 2011/8 state:

82. The Commissioner will not cancel the registration with effect from a date on which the entity was required to be registered, and will not usually do so from any date when the entity was operating as if it were registered for GST.

83. When an entity that was required to be registered applies to cancel its registration, the Commissioner will ordinarily accept the cancellation date the entity chooses, provided that the entity:

• was not required to be registered after that date
• was entitled to be registered before that date
• has been registered for 12 months, and
• has at that date ceased operating on a GST-registered basis.

Furthermore, paragraph 86 of PS LA 2011/8 states:

86. The Commissioner will be satisfied that an entity has stopped operating (or never operated) on a GST-registered basis from a certain date if, from that date or an earlier date, the entity:

• did not hold themselves out to other businesses as being registered for GST
• did not issue any tax invoices or adjustment notes
• did not claim any input tax credits, special transitional credits or indirect transitional credits, and
• has made a declaration to the ATO that satisfies all of the above points.

You intend to request the cancellation of your GST registration take effect from dd/mm/yyyy. Therefore, in the situation you hold yourself out to be registered for GST from dd/mm/yyyy (such as include GST or issue a tax invoice to sales of cattle, Christmas trees, equipment, etc made from dd/mm/yyyy) the Commissioner will not cancel your registration from dd/mm/yyyy and will decide a more appropriate date.