Edited version of private advice

Authorisation Number: 1052213466658

Date of advice: 24 January 2024

Ruling

Subject: GST and sale of property

Question

Will you make a taxable supply as defined in section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 when you sell your property located at X address?

Answer

No

This ruling applies for the following period(s)

DDMMYYYY to DDMMYYYY

The scheme commences on

DDMMYYYY

Relevant facts and circumstances

You are not, and never have been, registered for GST.

In YYYY, you acquired property located at X address (the Property).

At the time of your acquisition the Property consisted of a three-bedroom, two-bathroom residential dwelling.

Following your acquisition, you rented the Property.

On DDMMYYYY the hot water pipe in the ceiling burst resulting in water damage to the ceilings, walls, carpets, floors, cabinets and appliances.

You lodged an insurance claim on the same day.

On DDMMYYYY you received authority to proceed with repairs.

Due to the timeframe from the date of the damage to receiving authority to proceed with repairs, mildew had occurred in walls, ceilings and floors.

All ceilings (except for the living room), all internal wall plaster, insulation, cabinetry, appliances, lighting, timber flooring, carpet and heating flooring in bathrooms were affected. All affected areas were taken back to frame.

Repairs carried out included the replacement of electrical cables, replacement of timber flooring and installation of plaster on walls and ceilings.

Kitchen, laundry and bathroom cabinetry was replaced; however, the standard was not equivalent to what had existed prior to the damage. You received a partial payout as compensation for the sub-standard repairs.

You are considering selling the Property for consideration.

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 9-20

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 section 40-35

A New Tax System (Goods and Services Tax) Act 1999 section 188-10

A New Tax System (Goods and Services Tax) Act 1999 section 188-15

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

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

Reasons for decision

In this ruling,

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

•                     all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act.

•                     all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website ato.gov.au

Question 1

Section 9-40 provides that you are liable for GST on any taxable supplies that you make.

Section 9-5 provides 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 for GST.

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

In this instance, the supply of the Property will be made for consideration and is located in the indirect tax zone. Therefore paragraphs 9-5(a) and 9-5(c) will be satisfied.

The issues in this case are whether the supply of the Property is made in the course or furtherance of an enterprise that you carry on, and if so, as you are not registered for GST, whether you are required to register.

Enterprise

Section 9-20 provides an enterprise is an activity, or series of activities, done (among other things) on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.

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

Following the acquisition of the Property in YYYY, you leased the Property until the damage occurred in MMYYYY. We consider you carried on an enterprise of leasing residential property since the time of your acquisition. The sale of the Property is considered to be an activity done in the termination of that leasing enterprise.

Therefore, the sale of the Property will satisfy paragraph 9-5(b).

Registration

Section 23-5 provides 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.

As discussed above, we consider you are carrying on an enterprise and therefore satisfy paragraph 23-5(a).

The current registration turnover threshold for entities other than non-profit bodies is $75,000.

Subsection 188-10(1) provides that you will meet 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 GST turnover is below the turnover threshold; or

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

Section 188-15 defines the term 'current GST turnover' as the sum of the values of supplies made in a particular month and the previous 11 months other than:

•                     supplies that are input taxed

•                     supplies that are not made for consideration

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

Section 188-20 defines the term 'projected GST turnover' as the sum of the values of supplies make in a particular month and are likely to make in the following 11 months other than:

•                     supplies that are input taxed

•                     supplies that are not made for consideration

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

Section 40-35 provides that the supply of residential premises by way of lease, hire or licence that are to be used predominately for residential accommodation is input taxed. Therefore, the value of your supplies of the Property by way of lease is disregarded when considering whether you meet the registration turnover threshold.

Furthermore, section 188-25 provides that in working out your projected GST turnover you should disregard, amongst other things, any supply made or likely to be made by you by way of a transfer of ownership of a capital asset of yours.

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) explains the meaning of 'capital asset' in the context of section 188-25 in paragraphs 31 to 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.

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.

We consider the Property will fall within the scope of a 'capital asset' and therefore the sale will be disregarded in calculating your projected turnover pursuant to section 188-25.

Given the above, your turnover will not meet the registration turnover threshold and paragraph 23-5(b) will not be met. Consequently, you are not required to be registered under section 23-5 and paragraph 9-5(d) will not be satisfied.

Conclusion

The sale of the Property will not be a 'taxable supply' as defined in section 9-5. As such, you will not be liable for GST in respect of the sale under section 9-40.