Edited version of private advice

Authorisation Number: 1052147534363

Date of advice: 4 August 2023

Ruling

Subject: GST and sale of property

Detailed reasoning

All legislative references in this ruling are of A New Tax System (Goods and Services Tax) Act 1999 unless otherwise stated.

Question 1

As joint owners of a residential property, were Husband and Wife required to be registered jointly for goods and services tax (GST) when it was sold?

Answer

No, as joint owners of the property, Husband and Wife were not required to be registered jointly for GST when it was sold.

This ruling applies for the following periods:

Various years ended 30 June xxxx

Relevant facts and circumstances

Husband and Wife are registered for GST in their own right.

They jointly purchased a residential property with no GST included on the purchase price.

They developed the property where 2 units were built.

They retained Unit 1 for leasing. No GST credits related to the development costs of Unit 1 were claimed as it was used for residential rent until it was sold.

Relevant legislative provisions

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

ection 23-5 provides that an entity is required to be registered for GST if it is carrying on an enterprise and its GST turnover meets the GST registration turnover threshold (which is $75,000 exclusive of GST or $150,000 if the entity is a non-profit entity).

In this case, it is clear that Husband and Wife are carrying on an enterprise of providing residential rent when the property was rented out upon its completion, thereby making input taxed supplies under section 40-35. In this regard, as Husband and Wife are in receipt of income jointly, they are a tax law partnership and we have to consider if their GST turnover meets the GST registration turnover threshold, in particular, to consider if the sale of the property will have any effect on their GST turnover.

Subsection 188-10(1) provides that an entity has a GST turnover that meets the registration turnover threshold if the entity's:

•                current GST turnover is at or above the turnover and the Commissioner is not satisfied that the entity's projected GST turnover is below the turnover threshold, or

•                projected GST turnover is at or above the turnover threshold. (emphasis added)

These terms are defined in sections 188-15 and 188-20 respectively, subject to certain exclusions, as follows:

•                current GST turnover at a time during a particular month is the sum of the values of all the supplies that you made, or are likely to make, during the current month and the preceding 11 months

•                projected GST turnover at a time during a particular month is the sum of the values of all the supplies that you made, or are likely to make, during that month and the next 11 months. (emphasis added)

Both sections 188-15 and 188-20 also provide that input taxed supplies are not included in working out the current GST turnover and projected GST turnover respectively.

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 sets out the Commissioner's views on the meaning of GST turnover.

Paragraph 31 of GSTR 2001/7 provides that 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.

Paragraphs 33 and 34 of GSTR 2001/7 further provides that 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).

'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'.

Application of the law

Based on the facts of this case, Husband and Wife, being a tax law partnership, do not have a GST turnover that meets the registration turnover threshold. This is because the income that they receive from renting the property and any other residential rental properties that they may have, is excluded from working out their current and projected GST turnover in accordance with sections 188-15 and 188-20 respectively.

As such, the sale of the property was not a taxable supply as they are not required to be registered for GST pursuant to section 23-5 as their GST turnover will not satisfy the GST registration turnover threshold.