Edited version of private advice

Authorisation Number: 1052040575575

Date of advice: 18 October 2022

Ruling

Subject: GST - taxable supply

Question

Will Entity A's sale of its interest in the specified property to a purchaser, be a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

This ruling applies for the specified period.

The scheme commences on the specified date.

Relevant facts and circumstances

More than XX years ago, Entity A purchased the specified property situated in Australia.

The property was vacant land.

After its acquisition, infrastructure and sheds were constructed on the land to facilitate farming and housing of livestock; and Entity A together with Entity B (the partnership) commenced the farming business.

The property is included in the assets and accounts of the partnership.

The property has been used for livestock farming and other related business activities.

The partnership was previously registered for the goods and services tax (GST).

Recently, the partnership has ceased all business activity on the property and has cancelled its GST registration. The partnership does not intend to carry on any further activity and will be dissolved.

The partnership is not currently registered for GST.

Entity A wishes to sell its interest in the specified property to a purchaser.

Entity A does not carry on any enterprise activities and is not registered for GST in its own separate capacity.

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 188-10

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

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

Reasons for decision

GST is payable on taxable supplies.

You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states:

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.

(*Denotes a term defined in section 195-1 of the GST Act)

The expression 'you' refers to an entity for GST purposes.

Paragraphs 26-28 of Goods and Services Tax Ruling GSTR 2003/13Goods and services tax: general law partnerships (GSTR 2003/13) provide that the GST Act treats a partnership as 'an entity for all purposes of the Act' and, as an entity, a general law partnership may register for GST. Where a partnership is registered for GST, it will be liable for GST on taxable supplies that it makes. Furthermore, supplies that are made by or on behalf of partners in their capacity as partners are treated as supplies and acquisitions by the partnership.

A partner does not carry on an enterprise as a partner in a partnership. Therefore, a partner cannot register for GST in relation to the enterprise of the partnership.

A general dissolution of a partnership may be brought about by a permanent cessation of the business carried on.

The definition of 'carrying on an enterprise' includes doing anything in the course of the termination of the enterprise. The activities that are carried out as part of the winding up of the partnership are in 'carrying on an enterprise'. Realising business assets as part of winding up a partnership involves the partnership making supplies in the course or furtherance of an enterprise that it carries on. Those supplies are taxable supplies if all the requirements of section 9-5 of the GST Act are met.

In this case, the specified property, which is being sold, contains the infrastructure and the sheds which have been used by the partnership to facilitate the operation of its business.

The property was included as an asset of the partnership in the records of the partnership and has been used in connection with the partnership business which has now permanently ceased. As such, when the property is sold, it is the partnership which is the entity making the supply, not the partners in their own separate capacities.

Although Entity A legally owns the specified property, for GST purposes, Entity A is selling the property in its capacity as partner of the partnership.

On the facts, although the sale will be in the course or furtherance of the partnership enterprise, the partnership will be neither registered nor required to be registered for GST at the time of sale, and all the requirements of section 9-5 of the GST Act will not be satisfied. Consequently, the sale will not be a taxable supply by the partnership.

As the sale is by the partnership, there are no GST consequences for the partner Entity A in respect of the sale of its interest in the specified property.

Moreover, Entity A is not registered for GST and has not been carrying on an enterprise in its own right. On the facts, Entity A will also not be required to be registered for GST in its own capacity upon the sale of the specified property.