Edited version of private advice

Authorisation Number: 1051906363705

Date of advice: 5 October 2021

Ruling

Subject: GST and sale of property

Question

Are you required to be registered for goods and services tax (GST) and charge the purchaser of your property GST in relation to the sale of the property?

Answer

Yes

This ruling applies for the following period:

I July 20XX to the date of sale of the property

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are not registered for goods and services tax (GST).

In 19XX you purchased a property which comprises of two lots.

Since your acquisition of the property in 19XX, you have allowed a related entity of yours to use the property rent free. The related entity has paid all the property outgoings. For the financial year 1 July 20XX to 30 June 20XX, these outgoings include council rates, water rates, land tax and insurance and totals to an amount of $XX.

The property has a large freestanding building/warehouse on it and a large yard which is used by your related entity as part of a timber yard business.

You purchased the property for investment as a capital asset.

You have not developed nor were you intending to develop the property or use it as trading stock.

You now intend to sell the property as is, that is without undertaking any development to it.

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 Division 188

Reasons for decision

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states as follows:

Section 9-5 of the GST Act states as follows:

Taxable supplies

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.

(All items marked with an * are defined terms in the GST Act)

Your supply by way of sale of the property will be made for consideration and is connected with the indirect zone. There are no provisions in the GST Act that will make your supply of the property GST-free or input taxed.

What remains to be determined is if you make the supply of the property in the course of furtherance of an enterprise that you carry on and whether you are required to be registered.

Course of furtherance of an enterprise that you carry on

The term 'enterprise' is defined for GST purposes in section 9-20 of the GST Act and includes, among other things, an activity or series of activities done on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.

Paragraph 6 of Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9)recognises than an arrangement between parties may be evidenced by written agreements, oral agreements, legal instruments or combinations of such things.

The provision of the property by you to your related entity will fall within the scope of a commercial leasing enterprise for GST purposes. That is, you are considered to be leasing the property to your related entity and the subsequent sale of the property is considered to be activities done in the course or furtherance of the leasing enterprise that you carry on.

Further, Goods and Services Tax Determination GSTD 2000/10 Goods and services tax: are outgoings payable by a tenant under a commercial property lease part of consideration for the supply of the premises? (GSTD 2000/10) considers what constitutes consideration for the supply of commercial property.

Relevantly, the following paragraphs of GSTD 2000/10 state:

2. The consideration for the supply of premises by a landlord includes amounts which are paid by the tenant under the terms of the lease:

•         to the landlord for amounts for which the landlord is liable; or

•         directly to a third party where the payment is in satisfaction of the landlord's liability.

3. If the supply of premises is a taxable supply, GST is payable on the value of the supply. The value of a supply of premises is equal to the GST-exclusive consideration for the supply of the premises. Therefore, the landlord is liable for GST on the outgoings whether paid to the landlord or directly to a third party.

8. Payment by the landlord of local council rates, land tax or water charges may not be subject to GST because of the operation of Division 81. If the tenant is required under the terms of the lease to reimburse the landlord's expenditure on an 'Australian tax, fee or charge' listed in the determination made by the Treasurer under subsection 81-5(2) of the GST Act, this is not the 'payment of [an] Australian tax, fee or charge' by the tenant and Division 81 does not apply to the tenant's reimbursement of the rates, land tax or other charges.

9. If the tenant makes payment directly to the entity levying the tax, fee or charge, this payment will be consideration for the supply of the premises not payment for a supply that the entity levying the tax, fee or charge makes to the tenant. Therefore Division 81 does not apply to payments for the supply by a landlord under a lease and the payment of the tax, fee or charge by the tenant forms part of the consideration for the supply of the premises.

You have told us that for the financial year ending 30 June 2021, your related entity has paid outgoings on your property comprising council rates, water rates, land tax and insurance, amounting to $XX. Given the Commissioner's view as expressed in GSTD 2000/10, these payments by your related entity constitute rental income for you.

Required to be registered

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.

Under Division 188 of the GST Act, 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.

Based on the 20XX/20XX financial year where your rental income amounts to $XX, your current turnover exceeds $75,000 and you are therefore required to be registered for GST.

Your subsequent sale of the property will be a taxable supply as it is the sale of a commercial property the supply of which meets all the requirements of section 9-5 of the GST Act. Therefore, the sale of the property to the purchaser should include GST in the price as it is a taxable supply under section 9-5 of the GST Act.