Edited version of private advice

Authorisation Number: 1052201203134

Date of advice: 8 December 2023

Ruling

Subject: Taxable supply - sale of property

Question

Will the sale of the property be a taxable supply in accordance with section 9-5), when sold by you?

Answer

No, the sale of the property will not be a taxable supply in accordance with section 9-5 when sold by you.

This ruling applies for the following period:

Year ending 30 June 2024

Year ending 30 June 2029.

The scheme commences on:

The date the private ruling is issued.

Relevant facts and circumstances

•         The original property, was purchased by you in XXXX and was used as your principal place of residence.

•         You decided to demolish your residence, subdivide the block into two separate titles being A & B and build two duplexes.

•         The duplexes were completed by 15 June 20XX.

•         The intention when building the duplexes was to live in number A and to lease out number B, which is the property that is the subject of this private ruling.

•         You have lived in A since completion.

•         The property B has been leased since completion.

•         You intended at all times to keep the property and lease it out, however, due to the increasing interest rates, you are finding the loan difficult to upkeep and have decided to sell the property.

•         The property is currently listed for sale with a real estate agent.

•         You do not have an Australian Business Number (ABN).

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 subsection 40-75(1)

A New tax System (Goods and Services Tax) Act 1999 subsection 40-75(2)

A New Tax System (Goods and Services Tax) Act 1999 section 23-5

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

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

Reasons for decision

Under section 40-75 a new residential premises is defined as:

1.    Residential premises are new residential premises if they:

a)    Have not previously been sold as residential premises (other than commercial residential premises) and have not previously been the subject to 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.

Paragraphs (b) and (c) have effect subject to paragraph (a).

2.    However, the residential premises are not new residential premises if, for the period of at least 5 years since:

a)    If paragraph (1)(a) applies (and neither paragraph (1)(b) nor paragraph (1)(c) applies) - the premises first became residential premises; or

b)    If paragraph (1)(b) applies - the premises were last substantially renovated; or

c)    If paragraph (1)(c) applies - the premises were last built;

The premises have only been used for making supplies that are input taxed because of paragraph 40-35(1)(a).

In your case, the property was newly constructed in 20xx and was leased from that date. Therefore, as the property had never before been sold as a residential premises, and had not been leased for a period of more than 5 years, the property qualifies as a new residential premises under section 40-75.

Next, we have to determine whether the sale of the property would be a taxable supply under section 9-5.

Under section 9-5, an entity makes a taxable supply where the supply:

1.    is made for consideration; and

2.    is made in the furtherance of an enterprise being carried on; and

3.    is connected with the indirect tax zone; and

4.    is made by a supplier who is registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

In your case, the property to be sold is located in the indirect tax zone and the supply will be for consideration. Therefore, the sale of the property satisfies two elements outlined above (1&3). Accordingly, we need to determine whether the other two elements (2&4) would be satisfied. If this were the case the sale of the property would satisfy all of the requirements under section 9-5 and would be a taxable supply.

You are carrying on a leasing enterprise and making input taxed supplies. You do not hold an ABN and are not required to register for GST in relation to the leasing enterprise. However, we need to determine whether, as a result of the sale of the property you will be required to register for GST.

GST registration

Section 23-5 of the GST Act provides that you are required to be registered for GST if you carry on an enterprise and your GST turnover meets the registration turnover threshold (currently $75,000).

Division 188 provides the meaning of GST turnover. Section 188-20 states that your projected turnover at a time during a month is the sum of the values of all supplies that you have made, or are likely to make, during that month and the following 11 months, other than supplies that are:

(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 in the connection with an enterprise that you carry on.

Section 188-25 states that in working out your projected turn over, disregard:

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

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

i.        Ceasing to carry on an enterprise; or

ii.        Substantially and permanently reducing the size of an enterprise.

The sale of the property is the sale of a capital asset and the proceeds relating to the sale of a capital asset are excluded from the GST turnover calculation as are the input taxed supplies that you make.

Therefore, you are not required to register for GST as your turnover will not exceed the GST turnover threshold.

Conclusion

Given the above, we do not consider that your activity of selling the property will be a taxable supply as all of the elements of section 9-5 will not have been met.