Edited version of private advice

Authorisation Number: 1052117341212

Date of advice: 6 June 2023

Ruling

Subject: GST and registration

Question 1

Is the partnership of Entity A (the Partnership) required to be registered for GST pursuant to section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) with effect from XX YYYY?

Answer

No.

Question 2

Is the Partnership entitled to cancel its GST registration pursuant to section 25-55 of the GST Act with effect from XX YYYY?

Answer

Yes

Question 3

Where the option to purchase any of the Properties is exercised and the Partnership cancels its GST registration prior to settlement of the Properties, will the sale of Property 1A, Property 1B and/or Property 2 (as applicable) be taxable supplies pursuant to section 9-5 of the GST Act?

Answer

No

This ruling applies for the following period:

XX YYYY to XX YYYY

The scheme commences on:

XX YYYYY

Relevant facts and circumstances

The Vendors are partners in the Partnership. The Partnership has been registered for GST since 1 July 2000 and accounts for GST on a quarterly basis.

The Vendors own Lot X and Lot Y (the Properties) as joint tenants.

Lot X

Lot X was acquired by the Vendors in YYYY. It is approximately X acres and comprises a house (constructed prior to 2000) which is used as the Vendors' main residence, a shed and a market garden which covers the remainder of the land.

When Lot X was purchased in YYYY there were existing grape vines and peach trees, which the Vendors harvested that season. The Vendors then transitioned into market gardening in YYYY.

Lot Y

Lot Y is approximately X acres and comprises a market garden. Lot Y was acquired by the Vendors in YYYY and the site was immediately transitioned into a market garden.

There have been no transactions involving the Properties since they were purchased.

Since YYYY, the Vendors have operated the farming business through Entity B as trustee for the Entity B Family Trust (the Family Trust). The Family Trust has been registered for GST since XX YYYY.

The Family Trust continues to operate the business from both market gardens located on Lot X and Lot Y.

The Vendors (in their capacity as partners in the Partnership) have leased the Properties (other than the residence on Lot X) to the Family Trust. There is no formal, written lease agreement in place.

Service fees (comprising rates and taxes and farm improvement costs) are charged to the Family Trust. The total service fees per annum are generally less than $X.

The Vendors were approached by a Developer to sell the Properties.

The Partnership entered into a Deed of Call Option and Put Option dated XX YYYY (the Deed) with Entity C (the Purchaser) to grant Put and Call Options over the Properties. A copy of the Deed was provided as part of this ruling application.

The Deed attaches 3 possible sales contracts over Property 1A, Property 1B and Property 2 that are to be executed by the parties where the relevant put or call options are exercised.

Property 1A is the Subdivided Lotand comprises part of Lot Y. Property 1B is Lot Y and Property 2 is Lot X.

The Deed is summarised below.

TheDeed

Background

(a)  The Vendors are the owners of the Property, which comprises Lot X and Lot Y.

(b)  With the consent of the Vendors, Lot Y will be subdivided by the Purchaser under the Subdivision so as to create the Subdivided Lot and the Residue Lot.

(c)   ...the Vendors have agreed to grant to the Purchaser the Call Options to require the Vendors to sell the Properties to the Purchaser on the terms and conditions in the Annexed Contracts.

(d)  The Purchaser has agreed to grant to the Vendors the Put Options to require the Purchaser to purchase the Properties from the Vendors on terms and conditions in the Annexed Contracts.

...

Dictionary and Interpretation (Clause X)

In consideration of the payment by the Purchaser to the Vendors of the Call Option Fees (...), the Vendors grant to the Purchaser from the date of the Deed separate options to purchase each of the Properties for the relevant Purchase Price (clause x).

On exercise of the relevant Call Option or Put Option (clauses x and x), a contract of sale (as per the contract of sale annexed to the Deed) shall be concluded between the Vendors and the Purchaser for the relevant Property.

The Purchaser must pay the Vendors the Due Diligence Fee, being $X, and the Call Option Fees, being $X for Property 1A, $X for Property 1B and $X for Property 2 on the date of the Deed (clause x). These amounts were paid on XX YYYY. The GST amount on the Due Diligence Fee and the Call Option Fees (totalling $X) were paid on XX YYYY.

Where the relevant options are exercised, the purchase price for Property 1A will be $X, the purchase price for Property 1B will be $X and the purchase price for Property 2 will be $X. We note the purchase price can be adjusted in accordance with clause x and following (based on a survey of the Properties).

The Due Diligence Fee and the Call Option Fees are not refundable to the Purchaser, regardless of whether either of the options is exercised. Where the Deed is validly terminated due to the Vendor's default, the Vendor must repay the Due Diligence Fee and the Call Option Fees to the Purchaser (clause x).

In the event that:

(a)  Either Call Option 1 or Put Option 1 is exercised, the Due Diligence Fee and Call Option Fee 1 form part of the Deposit under Contract 1 and part of the Purchase Price for Property 1; and

(b)  Either Call Option 2 or Put Option 2 is exercised, Call Option 2 forms part of the Deposit under Contract 2 and part of the Purchase Price for Property 2 (clause x).

The Purchaser must pay to the Vendors (clause x):

(a)  the Security Amounts as security for performance by the Purchaser of the Purchaser's obligations under the Deed and Contract 1; and

(b)  the Further Security Amount as security for performance by the Purchaser of the Purchaser's obligations under the Deed and Contract 2 (clause x).

The Purchaser must pay the Security Amounts and the Further Security Amount to the Vendor's Solicitor's Account as follows (clause x):

(a)  Security Amount A ($X) x business Days after the Due Diligence End Date.

(b)  Security Amount B ($X) x Months after the date of the Deed.

(c)   Security Amount B2 ($X) x Months after the date of the Deed.

(d)  Security Amount B3 ($X) x months after the date of the Deed.

(e)  Security Amount B4 ($X) x months after the date of the Deed.

(f)    Security Amount B5 ($X) x months after the date of the Deed.

(g)  Security Amount B6 ($X) x months after the date of the Deed.

(h)  Security Amount C ($X) x months after the date of the Deed.

(i)    The Further Security Amount ($X) x months after the date of the Deed.

The parties irrevocably direct the Vendor's Solicitor to release each Security Amount and the Further Security Amount to the Vendors on the date they are paid (clause x).

Upon exercise of Call Option 1 or Put Option 1 (as applicable), the Security Amounts form part of the Deposit under Contract 1 and part of the Purchase Price for Property 1 (Clause x).

Upon exercise of Call Option 2 or Put Option 2 (as applicable), the Further Security Amount forms part of the Deposit under Contract 2 and part of the Purchase Price for Property 2 (clause x).

In the event that:

(a)  neither Call Option 1 nor Put Option 1 is exercised; or

(b)  The Deed is validly terminated:

(1)  due to the Vendor's default;

(2)  pursuant to clause x (with respect to Property 1); or

(3)  pursuant to clause x (GST is addition to the Purchase Price unless Purchaser gives notice)

the Vendors must repay the Security Amounts to the Purchaser within x Business Days of the earlier of...(clause x)

Clause x contains similar wording as clause x in respect of Call Option 2 and Put Option 2.

The Deed is subject to and conditional upon the Purchaser satisfying the Due Diligence Condition by the Due Diligence End Date (clause x). The Due Diligence Condition means the Purchaser being satisfied, in its absolute discretion, with its Due Diligence Investigations (clause x). The Due Diligence End Date (clause x) is defined as the date which is the later of:

(a)  x after the date of the Deed; and

(b)  if the Vendors have made the Private Ruling Application in accordance with clause x of the Deed and have given the Purchaser a copy of the Private Ruling Application in accordance with clause x, x Business Days after the Vendors serve the Purchaser with a copy of the Private Ruling.

You have advised that the clauses references in paragraph x should instead be references to clauses x and x. These clauses provide that the Vendors may obtain, at their own cost and expense, the Private Ruling (being a private ruling from the ATO to determine whether the sale of either Property is a Taxable Supply).

The Private Ruling Application must be submitted within x business days after the date of the Deed and the Vendors must give to the Purchaser a copy of the Private Ruling Application within x business days after it has been submitted to the ATO.

Effectively, the due diligence period gives the Purchaser an opportunity to conduct its due diligence in respect of the Properties and for the Vendors to obtain a private ruling from the Australian Taxation Office (ATO).

The Purchaser must do all things reasonably necessary, and at its own cost and expense, to obtain Subdivision Approval (clause x). After obtaining the Subdivision Approval, the Purchaser must:

(a)  do all things necessary, and at its own expense, to effect the Subdivision as soon as practicable;

(b)  as soon as practicable, serve on the Vendor's Solicitor a complete copy of the Subdivision Approval and Subdivision Plan (clause x).

The term subdivision is defined in clause x to mean:

The subdivision of Lot Y by way of registration of the Subdivision Plan so as to create the subdivided Lot and the Residue Lot, substantially in accordance with the Preliminary Subdivision Plan.

Where Lot Y is subdivided into the Subdivided Lot and the Residue Lot, both these lots will on subdivision be owned by the Vendors.

Where this occurs and the relevant Put or Call Option is exercised, the Purchaser (or its nominee) will purchase Property 1A (i.e. the Subdivided Lot) and the Vendors will retain the Residue Lot. Where this does not occur and the relevant Put or Call Option is exercised, the Purchaser (or its nominee) will purchase Property 1B (i.e. Lot Y).

Clause x addresses the consequences once the private ruling is obtained.

The GST provisions to be included in the relevant sale contracts (referred to as Contract 1A, Contract 1B and Contract 2 for the relevant Properties) are to be determined in accordance with the outcome of the requested private ruling and clauses x and following of the Deed.

The settlement period for each Property sale is x months under the relevant sale contract.

Where the Call or Put Option over Property 1A is exercised (i.e. over the Subdivided Lot), the Vendors will sell the Subdivided Lot to the Purchaser under Contract 1A. In these circumstances, the Vendors will also sell the Residue Lot to the Family Trust or to another related party of the Vendors at or about the same time as the sale to the Purchaser. This sale will be for market value.

The Family Trust (as owner of the Residue Lot) will then enter into a Development Deed with the Purchaser, which covers development works to be undertaken on the Residue Lot. The Development Deed is annexed to the sale contract for Property 1A (refer Annexure "A" of Contract 1A). For completeness, the Vendors will not be a party to the Development Deed.

Where Lot Y is not subdivided and the Call or Put option over Property 1B is exercised (i.e. where the Vendors sell Lot Y, rather than the Subdivided Lot, to the Purchaser), the Vendors can elect to receive an additional purchase price of $X or receive a pre-emptive right for the Vendors or its nominee to purchase developed lots in the Purchaser's development of the Properties at a discount of X% to the Purchaser's list prices for those developed lots. Where the Vendors elect to receive the pre-emptive right, the parties will enter into the Pre-Emption Deed (refer Annexure "A" of Contract 1B). That is, the pre-emptive right is to obtain a vacant lot within the Purchaser's development.

If the Vendors elect to receive the pre-emptive right, the lots will be purchased by the Family Trust or another related party of the Vendors (i.e. the Family Trust or other related party will be nominated as the purchaser under the relevant sale contract). The Vendors will not be the purchaser of the lots.

If the Vendors validly terminate the Deed (subclause x) then without limiting the Vendor's rights, the Due Diligence Fee, Call Option Fees, Security Amounts and Further Security Amount received by the Vendors will be forfeited to the Vendors and will not be refundable to the Purchaser under any circumstances (subclause x).

Additional information

The Properties are included as assets in the financial statements of the Partnership. The Service Fees charged by the Partnership to the Family Trust are similarly recognised in the Partnership's Financial Statements.

In the YYYY financial year, service fees of about $X were charged to the Family Trust.

In the YYYY financial year, service fees of about $X were charged to the Family Trust. GST was charged by the Trust on the service fees and is remitted in the Partnership's BAS.

Neither Partner has ever had an ABN, nor been registered for GST in their own individual capacities.

The Vendors (and therefore the Partnership) do not expect to earn any revenue other than the sales proceeds from the sale of the Properties.

Once the Purchaser has purchased the relevant Properties, it will develop the Properties into residential lots for sale. The Purchaser will not continue to operate the Properties as market gardens or take over the lease to the Family Trust. The Purchaser is currently registered for GST.

The vendors also own a residential investment property (which receives residential rent) and a share in a commercial unit (jointly owned with the Family Superannuation Fund [Super Fund]).

The rent and expenses on the commercial property are recognised in a separate partnership between the Vendors and the Super Fund, which has been registered for GST since XX YYYY.

Relevant Documents Provided

(1)  Deed of Call Option and Put Option, dated XX YYYY

(2)  Annexure A1A - Annexed Contract - Property 1A

(3)  Annexure A - Development Deed, Lot 1, Part Lot Y

(4)  Annexure A1B - Annexed Contract - Property 1B

(5)  Annexure "A" Pre-emption Deed, Part Lot Y

(6)  Annexure A2 - Annexed Contract -Property 2

(7)  Annexure E - Preliminary Subdivision Plan

Relevant legislative provisions

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

Section 9-5

Section 9-10

Section 9-20

Subsection 9-30(2)

Paragraph 9-30(2)(a)

Paragraph 9-30(2)(b)

Section 9-40

Section 23-5

Division 40

Section 40-65

Subsection 188-10(1)

Section 188-15

Paragraph 188-15(1)(a)

Section 188-20

Paragraph 188-20(1)(a)

Paragraph 188-25(a)

Section 195-1

Reasons for decision

Note: In this reasoning, unless otherwise stated,

•         all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

•         reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

Question 1

Is the partnership required to be registered for GST pursuant to section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) with effect from XX YYYY?

Division 23 considers who is required to be registered and who may be registered. In particular, section 23-5 states:

You are required to be registered under this Act if:

(a)  you are carrying on an enterprise; and

(b)  your GST turnover meets the *egistration turnover threshold.

Pursuant to subsection 184-5(1), a supply, acquisition or importation made by or on behalf of a partnership in his or her capacity as a partner:

(a)  is taken to be a supply, acquisition or importation made by the partnership; and

(b)  is not taken to be a supply, acquisition or importation made by that partner or any other partner of the partnership.

For the purposes of section 23-5, the 'you' referred to, will therefore be the Partnership.

Enterprise

Section 9-20 provides that the term 'enterprise' 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.

In your case, Lot X (excluding the primary residence of the Vendors) and Lot Y are currently leased to Entity B as trustee for the Entity B Family Trust (Family Trust). Service fees are charged to the Family Trust including rates, taxes and farming improvements.

We consider that you are a tax law partnership for GST purposes as you are an association of persons in receipt of ordinary income (rent) jointly in relation to a leasing enterprise you are carrying on.

Section 195-1 states that the phrase 'carrying on' in the context of an enterprise includes 'doing anything in the course of the commencement or termination of the enterprise'.

As such we regard the entering into the Call Option Agreement and the subsequent sale of the respective Properties to be in the course of termination of your leasing enterprise.

Thus paragraph 23-5(a) is satisfied.

Turnover

GST turnover threshold has the meaning given by subsection 188-10(1) and 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.

Subsection 188-15(1) explains the meaning of current GST turnover and states:

(1)  Your current GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during the 12 months ending at the end of that month, other than:

(a)  supplies that are input taxed; or

(b)  supplies that are not for consideration (and are not taxable supplies under section 72-5); or

(c)   supplies that are not made in connection with an enterprise that you carry on.

Subsubsection 188-20(1) explains the meaning of projected GST turnover and states:

(1)  Your projected GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during that month and the next 11 months, other than:

(a)  supplies that are input taxed; or

(b)  supplies that are not for consideration (and are not taxable supplies under section 72-5); or

(c)   supplies that are not made in connection with an enterprise that you carry on.

Section 188-25 modifies the effect of section 188-20 by excluding further supplies made when working out your projected GST turnover. Section 188-25 requires you to also disregard the following when calculating your projected GST turnover:

(a)  any supply made, or likely to be made by you by way of transfer of ownership of a capital asset of yours; and

(b)  any supply made, or likely to be made, by you as a consequence of:

                    (i)        ceasing to carry on an enterprise; or

                   (ii)        substantially and permanently reducing the size or scale of an enterprise.

Your current GST turnover, in respect of your supply of the Properties to the Family Trust, is below the threshold of $75,000.

In addition, we must determine whether you will make a supply to the Purchaserpursuant to the Call Option Deed (the Deed) dated XX YYYY (and the value of those supplies, if any) and further, where the Call Option is exercised, whether the subsequent sale of the Property can be excluded from your Projected GST Turnover.

Supply

Section 9-10 provides that a 'supply' is any form of supply whatsoever' and includes relevantly:

•         a grant, assignment or surrender of real property;

•         a creation, grant, transfer, assignment or surrender of any right; and

•         an entry into, or release from, an obligation to do anything or to refrain from an act or to tolerate an act or situation.

Real property is defined in section 195-1 to include:

(a)  any interest or right over land; or

(b)  a personal right or call for or be granted any interest in or right over land; or

(c)   a licence to occupy land or any other contractual right exercisable over or in relation to land.

Grant of a Call Option

Goods and Services Tax Ruling GSTR 2006/9, Goods and services tax: supplies (GSTR 2006/9), provides guidance on the meaning of 'supply' in the GST Act.

Paragraph 137 of GSTR 2006/9 states the following:

137. The grant of a right or entry into an obligation may be a term or condition of a larger transaction. Where the grant of the right or entry into the binding obligation is the substance of the transaction it will be the subject matter of a supply.

Further, Goods and Services Tax Determination GSTD 2014/2: Goods and services tax: where real property is acquired following the exercise of a call option, does the call option fee form part of the consideration for the acquisition for the purposes of subsection 75-10(2) of the A New Tax System (Goods and Services Tax) Act 1999? discusses the meaning of a call option at paragraphs 12 and 13:

12. According to the Macquarie Dictionary and the Oxford Dictionary of English, a call option is:

a. the right to buy a specified commodity, parcel of shares, foreign exchange, etcetera, at a set price on or before a specified date (Macquarie Dictionary).

b. an option to buy assets at an agreed price on or before a particular date (Oxford Dictionary of English).

13. Options have been described as irrevocable offers or conditional contracts or sui generis arrangements. For the purposes of this Determination, a call option is an agreement between the grantor and the grantee, the exercise of which allows the grantee to compel the grantor to transfer real property to the grantee within a specified period of time.

Paragraphs 15 to 19 and paragraph 21 of GSTD 2014/2 contain further clarification of the Australian Taxation Office (ATO) view in regard to call options:

15. Where a call option is granted, the grantee provides consideration to the grantor, commonly referred to as a call option fee.

16. Where an entity has exercised a call option to compel the transfer of real property, for GST purposes, the call option fee does not form part of the consideration for the property.

17. This is the case even if the agreement between the parties specifies that the call option fee forms part of the price for the supply of the real property. The operation of section 9-17 varies what may be the outcome under contract law.

18. Subsection 9-17(1) relevantly provides, that if an option to acquire a thing is granted, then the consideration for the supply of the thing on the exercise of the option is limited to any additional consideration provided either for the supply or in connection with the exercise of the option.

19. In discussing former subsection 9-15(3)1, the Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 stated:

The supply of a right or option will be taxed when it is supplied. The later exercise of the right or option will be another supply. That later supply will not be taxable unless there is further consideration when the right or option is exercised.

...

21. In the context of a call option over real property, subsection 9-17(1) recognises that the supply of the option is a separate supply to the supply of the underlying property. As a consequence of subsection 9-17(1), the consideration for the call option is the call option fee, and the consideration for the supply or acquisition of the underlying property is limited to any additional consideration provided.

In this case, entering into the Call Option Deed and granting an option to the Purchaser to purchase the respective properties, is considered to be the substance of a separate transaction between you and the Purchaser (Grantee) and is considered to fall within the definition of a 'supply' for GST purposes.

Supply of a right to undertake Due Diligence Investigations

Pursuant to clause x of the Deed, the Deed is subject to and conditional upon the purchaser satisfying the Due Diligence Condition by the Due Diligence End Date.

The Due Diligence Condition is defined in clause x of the Deed and means 'Purchaser being satisfied in its absolute discretion with its Due Diligence Investigations'.

The term 'Due Diligence Investigations' is further defined in clause x and means investigations or enquiries with respect to the Property, including:

(a)  detailed financial analysis

(b)  geotechnical reporting and land survey

(c)   investigations including surface and sub-surface investigations

(d)  preparing plans, drawings and reports.

The creation of the right to undertake the Due Diligence Investigations is a supply pursuant to section 9-10.

Supply of the Property

With reference to paragraph 21 of GSTD 2014/2 discussed above, where the call option is exercised, the subsequent supply of the Property would also constitute a 'supply' for GST purposes.

Supplies Summary

In summary, we consider that you are making three supplies pursuant to the Deed:

(1)  the granting of the Call Options; and

(2)  the granting or creation of the right to undertake a Due Diligence Investigations (as defined in the Deed of Call Option and Put Option [Deed] dated XX YYYY) prior to entering into a contractual arrangement regarding the subject properties; and

(3)  the subsequent supply of the respective Properties.

In applying the provisions of Division 188 for the purposes of paragraph 23-5(b), we will consider your GST turnover for the months of February YYYY and March YYYY.

GST turnover - February YYYY

We consider that your supplies made to the Developer, being the granting of the Call Options and the right to undertake Due Diligence Investigations, were made on 28 February YYY, upon the execution of the Deed.

Pursuant to the Deed, the Purchaser must pay the following amounts to the Vendor:

(1)  Consideration for the supply of the right to undertake Due Diligence Investigations, of $X

(2)  Consideration for the supply of granting a Call Option for Property 1A (the Subdivided Lot), in the amount of $X

(3)  Consideration for the supply of granting a Call Option for Property 1B (Lot Y), in the amount of $X

(4)  Consideration for the supply of granting a Call Option for Property 2 (Lot X), in the amount of $X.

Clause x of the Deed provides the following:

All consideration provided to the Vendors under this Deed is exclusive of GST unless it is specifically expressed to be GST-inclusive.

The Due Diligence Fee and Call Option Fees payable under the Deed are the 'value' of the respective supplies for GST purposes.

Your current GST turnover as calculated in February YYYY includes the Due Diligence Fee and the Call Option Fees (together with the value of any other supplies you have made between the period 1 March YYYY and 28 February YYYY). This amount is at or above the turnover threshold ($75,000).

Your projected GST turnover as calculated in February YYYY will also include the Due Diligence Fee and the Call Option Fees. Additionally, your projected GST turnover will also include the value of any supplies you will make during the period 1 March YYYY to 31 January YYYY. Ignoring at this point your subsequent supply of the Properties expected to be made during this period (which will be discussed below), this amount is also at or above $75,000 (i.e. not below $75,000).

Therefore, as your current GST turnover is at or above $75,000 and we are not satisfied your projected GST turnover is below $75,000, your GST turnover will meet the registration turnover threshold and you are required to be registered for GST.

GST turnover - March YYYY

Your current GST turnover as calculated in March YYYY includes the value of any supplies you made in March YYYY together with the value of any other supplies you have made between the period 1 April YYYY and 28 February YYYY (which will include the Due Diligence Fee and the Call Option Fees). Again, this amount is at or above the turnover threshold ($75,000).

Your projected GST turnover as calculated in March YYYY will include the value of any supplies you will make during the period 1 March YYYY to 29 February YYYY.

Pursuant to the arrangement you have entered into with the Developer, upon exercising the Put or Call Options, you will make a supply of the Properties to the Developer during this period (1 March YYYY to 28 February YYYY).

As discussed previously, section 188-25 provides that in calculating your projected GST turnover, you disregard any supply likely to be made by way of the transfer of ownership of a capital asset.

Goods and Services Tax Ruling GSTR 2001/7, Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover discusses the meaning of capital assets' at paragraphs 31 - 36:

Meaning of 'capital assets'

31. The GST Act does not define the term 'capital assets'. Generally, the term 'capital assets' refers to those assets that make up 'the profit yielding subject'. of an enterprise. They are often referred to as 'structural assets' and may be described as 'the business entity, structure or organisation set up or established for the earning of profits'.

32. 'Capital assets' can include tangible assets such as your factory, shop or office, your land on which they stand, fixtures and fittings, plant, furniture, machinery and motor vehicles that are retained by you to produce income. 'Capital assets' can also include intangible assets, such as your goodwill.

33. Capital assets are 'radically different from assets which are turned over and bought and sold in the course of trading operations'.An asset which is acquired and used for resale in the course of carrying on an enterprise (for example, trading stock) is not a 'capital asset' for the purposes of paragraph 188-25(a).

34. 'Capital assets' are to be distinguished from 'revenue assets'. A 'revenue asset' is 'an asset whose realisation is inherent in, or incidental to, the carrying on of a business'.

35. If the means by which you derive income is through the disposal of an asset, the asset will be of a revenue nature rather than a capital asset even if such a disposal is an occasional or one-off transaction. Isolated transactions are discussed further at paragraphs 46 and 47 of this Ruling.

36. Over the period that an asset is held by an entity, its character may change from capital to revenue or from revenue to capital. For the purposes of section 188-25 the character of an asset must be determined at the time of expected supply

In this case, we consider the supply of the Properties will constitute the sale or transfer of ownership of a capital asset. Lot X and Y comprised land that was applied to generate income (via lease to the Family Trust). Therefore, the value of the Properties supplied to the Developer is disregarded in calculating your projected GST turnover

For completeness, we acknowledge that a portion of Lot X was also used as your place of residence. Your supply of Lot X, to the extent Lot X is residential premises, is considered an input tax supply and a supply not made in connection with your leasing enterprise and therefore excluded from the calculations of both your current GST turnover and your projected GST turnover pursuant to paragraphs 188-15(1)(a), 188-15(1)(c), 188-20(1)(a), 188-20(1)(c) and 188-25(a).

Whilst your current GST turnover is at or above $75,000, we are satisfied that your projected GST turnover is below $75,000. Therefore, your GST turnover does not meet the registration turnover threshold and you are not required to be registered as at March YYYY.

Question 2

Is the Partnership entitled to cancel its GST registration pursuant to section 25-55 of the GST Act with effect from 1 March YYYY?

Section 23-55 provides that the Commissioner must cancel your GST registration if:

(a)  You have applied for cancellation of registration in the approved form; and

(b)  At the time you applied for cancellation of registration, you had been registered for at least 12 months.

(c)   The Commissioner is satisfied that you are not required to be registered.

You have been registered since 1 July 2000 and the Commissioner has determined in Question 1 that you are not required to be registered as from March YYYY. Consequently, you can apply in the approved form for cancellation of your GST registration.

Question 3

Where the option to purchase any of the Properties is exercised and the Partnership cancels its GST registration prior to settlement of the Properties, will the sale of Property 1A, Property 1B and/or Property 2 (as applicable) be taxable supplies pursuant to section 9-5 of the GST Act?

Section 9-5 provides that 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.

In this case, your supply of the Properties will satisfy the first 3 positive limbs of a taxable supply as the supply of the Properties will be:

•         made for consideration,

•         made in the course or furtherance of your leasing enterprise (noting as discussed above that the phrase 'carrying on' in the context of an enterprise includes 'doing anything in the course of the commencement or termination of the enterprise') and

•         connected with the indirect tax zone (as the Properties are located in Australia).

As discussed in Question 2, you are entitled to cancel your GST registration effective from 1 March YYYY as the Commissioner is satisfied you are not required to be registered.

The facts in this case indicate the sale of the Properties will settle on a date after 1 March YYYY. Therefore, where you cancel your GST registration effective from on or after 1 March YYYY and prior to the date of settlement, paragraph 9-5(d) will not be satisfied. That is, as at the day of settlement you would neither be registered nor required to be registered. Consequently, the supply of the Properties would not constitute a 'taxable supply' as defined in section 9-5.