Edited version of private advice

Authorisation Number: 1051900960531

Date of advice: Laurence Robinson

Ruling

Subject: GST and commercial property

Question

Will the sale of the property be a taxable supply?

Answer

No

Relevant facts and circumstances

You are a proprietary limited company that operates a business from premises that it owns. You are registered for GST and lodge an activity statement on a quarterly basis.

The beneficial owner of the company has operated for many years from these premises via the taxpayer company. He is approaching retirement and his business has slowed over recent years. He and one other staff member are employed by you for the provision of their services.

In connection with his retirement he wishes to simplify his operating structure and is considering moving his business into alternate premises. In conjunction with this simplification he is considering conducting his business in his individual name as a sole trader and is likely to close his business or offer it for sale. It is considered that the business does not have significant value as a going concern. This would him to simplify his affairs which is his objective in preparation for retirement which would include simplifying his administrative tasks, saving on employee costs and reduce his accounting and compliance fees.

He is then likely to deregister the company for GST as its only asset would be the freehold property from which his current business operates. He is considering whether he holds the property as a long-term asset or will place the property on the market for sale.

You purchased the freehold property prior to GST commencing.

Although you have received rental income in the past, the property currently has no sub-tenants and is a commercial premises.

The closure of the company and any subsequent sale of its property asset is in the course of simplifying and finalising the taxpayer's business interests in connection with his imminent retirement from the work force.

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 188-10

A New Tax System (Goods and Services Tax) Act 1999 section 188-25

Reasons for decision

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you make a *taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with the indirect tax zone, and

(d) you are *registered, or *required to be registered

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

On the information provided, the sale of the interest in the property will not be GST-free or input taxed.

The sale of the interest in the property will be for consideration. The property is located in Australia and therefore connected with the indirect tax zone.

However, although you are currently registered for GST, it needs to be determined whether the sale will be in the course or furtherance of an enterprise you carry on.

The business is no longer conducted by you and there are no tenants in the property. As such, you are no longer conducting an enterprise and you need to deregister for GST.

As the property was purchased prior to the commencement of GST, there are no adjustments that need to be made upon termination of your enterprise.

Once you are no longer registered for GST, your sale of the property will not be a taxable supply.

Additional information

Even if it was considered that you still conducted an enterprise, you could elect to deregister for GST based on your turnover.

You are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold (currently $75,000).

Section 188-10 of the GST Act states:

(1) You have a GST turnover that meets a particular * turnover threshold if:

(a) your * current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your * projected GST turnover is below the turnover threshold; or

(b) your projected GST turnover is at or above the turnover threshold.

In calculating your projected GST turnover, section 188-25 of the GST Act provides that you can disregard:

•         any supply made by you by way of transfer of ownership of a capital asset of yours, and

•         any supply made by you solely as a consequence of ceasing to carry on an enterprise.

The sale of an interest in the property by you would satisfy either of these exceptions to the calculation of projected GST turnover. Your projected GST turnover is therefore less than $75,000 and you are not required to be registered for GST.

Therefore, as you are not currently registered or required to be registered for GST, you will have no GST liability on the sale of the property.