Edited version of private advice

Authorisation Number: 1051957402520

Date of advice: 15 March 2022

Ruling

Subject: GST registration requirements

Question 1

Will the Commissioner accept that the taxpayer is not required to be registered under sub-paragraph 25-55(1)(c) of the GST Act, and will not be required to register for GST?

Answer

Yes.

Question 2

Assuming that the taxpayer is not required to be registered, will the Commissioner accept that the supply of the property is outside the scope of GST?

Answer

Yes.

The scheme commences on:

From the date of issue of this private ruling.

Relevant facts and circumstances

You are marketing for sale a property.

You acquired the property in 20XX.

Your sole business activity was leasing the property.

Renovations were conducted on the property by the previous owner.

Since acquiring the property, you have stated that you have incurred costs on minor refurbishments to the residential levels, such as improving kitchen and bathrooms, fire alarms and replacing appliances as needed to enhance the rental income. No input tax credits were claimed in respect of these costs.

You are not registered nor have you ever been registered for GST since obtaining an ABN.

The property comprises a longstanding federation-era house which has been extended at the back to include a floor of residential accommodation (being level 2), and a lower floor of office-style accommodation (being level 1). The basement level contains a multi-car space car park.

Since acquisition of the property, you have rented both the residential and commercial portions of the property under two separate leases to different parties.

The commercial portion is leased and you have stated that rent is charged on an arm's length market value basis.

You have stated that the residential portion is leased on an arm's length market value basis.

For the financial year ending 30 June 20XX, you derived total rent which comprised the following:

• Commercial rent; and
• Residential rent.

You forecast the same quantum of rent for each portion of the building for the financial year ending 30 June 20XX.

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 section 40-65

A New Tax System (Goods and Services Tax) Act 1999 section 40-75

A New Tax System (Goods and Services Tax) Act 1999 section 188-10

A New Tax System (Goods and Services Tax) Act 1999 section 188-15

A New Tax System (Goods and Services Tax) Act 1999 section 188-20

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

Reasons for decision

Under section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you are required to be registered if:

a) you are carrying on an enterprise; and

b) your GST annual turnover meets the GST registration turnover threshold which currently is AU$75,000 (AU$150,000 for non-profit organisation.

The term 'carrying on' in relation to an enterprise is defined in section 195-1 of the GST Act to include doing anything in the course of the commencement or termination of the enterprise.

It is accepted that you are 'carrying on' an enterprise in the form of leasing the property.

Subsection 188-10(1) of the GST Act provides that you have a GST turnover that meets a particular turnover threshold if:

•         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

•         your projected GST turnover is at or above the turnover threshold.

The current GST turnover is the value of all the supplies made by you during the current month and previous eleven months. Projected GST turnover is the value of all the supplies made or likely to be made by you in the current month and the next eleven months.

For the financial year ending 30 June 2021, you derived total rent, which comprises the following:

•         Commercial rent; and

•         Residential rent.

Therefore, you are making a mixed supply of both residential and commercial premises.

Under subsections 188-15(1) and 188-20(1) of the GST Act, input taxed supplies such as residential rent are excluded from current and projected GST turnover. The rental income from the lease of residential properties is not included in the calculation GST registration turnover.

However, subsection 40-65(2) of the GST Act states that a sale of residential premises is not input taxed to the extent that they are:

•         commercial residential premises; or

•         new residential premises other than those used for residential accommodation before 2 December 1998.

According to subsection 40-75(2) of the GST Act, residential premises are new residential premises, as defined in subsection 40-75(1) of the GST Act, if they:

a)    have not previously been sold as residential premises and have not previously been the subject of a long-term lease; or

b)    have been created through substantial renovations of a building; or

c)    have been built, or contain a building that has been built, to replace demolished premises on the same land.

Renovations were conducted on the property by the previous owner and since acquiring the property, you have incurred GST on minor refurbishments to the residential levels, such as improving kitchen and bathrooms, fire alarms and replacing appliances as needed to enhance the rental income.

The residential premises are not considered new residential premises and will not be included in the current and projected GST turnover.

In respect of the intended sale of the property, section 188-25 specifically excludes from the calculation of projected annual turnover:

•         the supply of a capital asset by way of transfer of its ownership, and

•         any supply made as a consequence of ceasing to carry on an enterprise or substantially and permanently reducing the size or scale of an enterprise.

In this case, the property was a capital asset from which you derived leasing income. Therefore paragraph 188-25(a) acts to exclude the sale price of the whole of the property from the calculation of projected GST turnover.

Therefore, your current and projected GST turnover will be insufficient to require you to register for GST.

As you are not required to register for GST the sale of the property will be input-taxed under section 40-65 of the GST Act.