Edited version of private advice

Authorisation Number: 1052207157088

Date of advice: 21 December 2023

Ruling

Subject: GST and vacant land

Question

Is the sale of your property situated at <address> a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999?

Answer

No.

This ruling applies for the followingperiods:

<date> - <date>

The scheme commenced on:

<date>

Relevant facts and circumstances

You are not registered for GST.

On <date>, you purchased a property located at <address> (the Property).

The Property is a vacant land with an area of approximately <number> hectares.

The Property has been vacant since purchase and no commercial activities have been conducted on the Property.

No improvements have been made to the Property since you acquired it.

Your intention was to build a house on the Property for retirement purposes. However, due to construction costs and other personal matters, you decided to sell the Property as part of your succession planning.

You entered into a Contract of Sale (sale contract) with <name> on <date>for the sale of the Property. You have provided a copy of the sale contract as part of your ruling application. The sale price of the Property is <number> and settlement is scheduled to occur <number> months after you entered into contract.

The Property will be sold as a whole lot.

There will not be any improvements made to the Property prior to the sale of the lot.

The Property will not be subject to any development approval prior to sale.

You own two other properties - your principal place of residence, and a residential rental property that you have owned since <date>.

You have not previously undertaken in property development projects.

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 9-40

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

Section 9-40 provides that you will be liable to pay the GST payable on any taxable supply that you make.

Section 9-5 provides that you will be making a taxable supply if:

(a)  you make the supply for consideration;

(b)  the supply is made in the course or furtherance of an enterprise that you carry on;

(c)   the supply is connected with the indirect tax zone (Australia); and

(d)  you are 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.

For the supply of the Property to be a taxable supply, all of the requirements under section 9-5 must be satisfied and it must not be GST-free or input taxed.

Based on the facts of the case, you will be selling the Property for consideration and the Property is connected with Australia as it is located in the indirect tax zone. In addition, you are currently carrying on a leasing enterprise. Therefore, paragraphs 9-5(a), 9-5(b) and 9-5(c) are satisfied. The sale of the Property will neither be GST-free nor input taxed.

Therefore, it is of relevance in this case to determine whether you are required to register for GST.

GST registration

As you are not registered for GST, we will consider whether you are required to be registered for GST.

Section 23-5 states that you are required to be registered for GST if:

(a)  you are carrying on an enterprise; and

(b)  your GST turnover meets the registration turnover threshold (in this case, the threshold is $75,000).

As determined above, paragraph 23-5(a) is satisfied as you are carrying on an enterprise in the form of a leasing enterprise, for another property.

However, if your GST turnover does not meet the registration turnover threshold, then you are not required to be registered.

The next issue to consider is whether your GST turnover meets the registration turnover threshold.

Registration turnover threshold

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

(a)  your current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your *projected turnover is below the turnover threshold; or

(b)  your projected GST turnover is at or above the turnover threshold.

It is necessary to determine whether your projected GST turnover meets the threshold. You are required to be registered for GST if your projected GST turnover is at or above $75,000.

Your projected GST turnover is the sum of the values of all supplies made in a particular month plus the next 11 months.

Supplies that are disregarded when working out your projected GST turnover include:

•         supplies that are input taxed

•         supplies that are not for consideration (and are not taxable supplies under section 72-5)

•         supplies that are not made in connection with an enterprise that you carry on

•         supplies that are not connected with Australia.

The lease of your rental property is an input taxed supply, therefore, it will be disregarded when working out your projected GST turnover.

Capital asset

Section 188-25 states that when calculating your projected GST turnover, you disregard:

(a)  any supply made, or likely to me made, by you by way of transfer of ownership of a capital asset; 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 scale of an enterprise.

The meaning of 'capital asset' is discussed in paragraphs 31 to 36 of 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 (GSTR 2001/7).

The GST Act does not define the term 'capital asset'. However, GSTR 2001/7 explains that 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. They may be described as the business entity, structure or organisation set up or established for the earning of profits.

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. 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. Therefore, the character of an asset must be determined at the time of the expected supply.

Your original intention was to build a personal residence on the Property. However, due to various external factors, you decided to sell the Property. It was not your intention to acquire the Property and derive income from its disposal.

Taking into account the facts and circumstances of this case, we consider that the sale of the Property will be treated as the transfer of a capital asset for the purposes of paragraph 188-15(a). This means that the sale proceeds of the Property would be disregarded when calculating your projected GST turnover.

Conclusion

As you are registered for GST and are also not required to be registered for GST in relation to the sale of the Property, the requirement of making taxable supply under paragraph 9-5(d) will not be satisfied. This means when you sell the Property, you will not be making a taxable supply under section 9-5 and GST will not be payable on the sale.