Edited version of private advice

Authorisation Number: 1051928378855

Date of advice: 1 December 2021

Ruling

Subject: GST on sale of commercial property acquired pre-GST

Question

Is there an increasing adjustment under Division 138 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) on the sale of a commercial property in February 2021 which was acquired pre-GST and the GST registration was cancelled on 30 June 2020?

Answer

No. There is no GST payable on the sale of the commercial property sold in February 2021 which was purchased pre-GST.

The scheme commences on:

5 November 2021

Relevant facts and circumstances

X and X (you) were the owners of the property located at Y.

The property at Y was purchased prior to the introduction of the GST legislation.

The property was rented as commercial shopfronts until June 2020.

You registered for GST in 2000 as a partnership.

You cancelled your GST registration effective 30 June 2020.

You accounted for GST annually on a cash basis.

The contract for sale states the property was sold in February 2021 for $X

The settlement date was in May 2021.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9

A New Tax System (Goods and Services Tax) Act 1999 Section 25

A New Tax System (Goods and Services Tax) Act 1999 Division 138

Reasons for decision

Section 9-5 of the GST Act provides an entity (which includes individuals) makes a taxable supply if:

•         it makes a supply for consideration; and

•         the supply is made in the course or furtherance of an enterprise that it carries on; and

•         the supply is connected with Australia; and

•         it is registered, or required to be registered.

Section 9-40 provides that you are liable for GST on any taxable supplies that you make.

Taxable supplies will include a sale of a commercial premises. However, section 25-50 of the GST Act entails that if you are registered for GST and are not carrying on an enterprise you must apply to the ATO on the approved form for cancellation of registration. Your GST registration was cancelled with effect from 30 June 2020.

Under paragraph 188-10(2)(b) of the GST Act an entity is not required to be registered if its projected annual turnover is at or below the turnover threshold.

Section 138-5 of the GST Act provides that you have an increasing adjustment if your registration is cancelled and immediately before the cancellation takes effect, your assets include anything in respect of which you were, or are, entitled to an input tax credit.

Section 138-15 (1) of the GST Act provides that the GST payable by you on a taxable supply... is attributable to a particular tax period, and no other, if:

(a) during the tax period, your registration is cancelled; and

(b) immediately before the cancellation, you were accounting on a cash basis; and

(c) the GST on the supply... was not attributable, to any extent, to a previous tax period during which you accounted on a cash basis; and

(d) it would have been attributable to that previous tax period had you not accounted on a cash basis during that period.

The property at Y was purchased pre-GST and a contract for the sale of the property was signed in February 2021. The settlement was in May 2021.

As you were not registered for GST at the time of the sale of the property there are no adjustments required under section 138-5 and there is no GST payable to be attributed (section 138-15) to the concluding tax period as the property was sold at the time of cancelling registration.