Edited version of private advice

Authorisation Number: 1052235284229

Date of advice: 17 May 2024

Ruling

Subject:GST - property enterprise

Question

Will the sale of the property located at address by (you) be a taxable supply in accordance with section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No. Your sale of the Property will not be a taxable supply.

This ruling applies for the following period:

DDMMYYYY to DDMMYYYY

The scheme commences on:

DDMMYYYY

Relevant facts and circumstances

In MMYYYY [you] purchased a property size freehold property situated over number adjoining parcels of land and located at address (the Property).

The Property, which includes a residence and a shed, is zoned for residential use and farm infrastructure land use.

You have lived in the residence at the Property since purchasing it in MM, YYYY.

You have never been registered for GST as individuals and have never had individual ABNs.

During your ownership of the Property, you have not used it to carry on a farming business.

You have not undertaken any development at the Property; only general maintenance.

You have not sought or applied for any development approvals at the Property.

The rural land and the shed at the Property were previously used in connection with your enterprise type and enterprise type businesses. Your enterprise type business ceased in MMYYYY. Your enterprise type business ceased in MMYYYY.

You are not registered for GST. You were previously registered for GST from DDMMYYYY to DDMMYYYY.

Since YYYY you have derived income from ongoing arrangements for the third-party use of land at the Property for enterprise type and for enterprise type. The combined income for the enterprise type and enterprise type activities are below the registration turnover threshold of $75,000.

You also own and derive income from residential rental properties at the following addresses:

•         address

You will sell the Property as one lot.

The enterprise type will be wound up before the Property is sold.

The enterprise type is expected to continue with the new owner (Purchaser) after the Property is sold.

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 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

Detailed Reasoning

Section 9-40 provides that GST is payable on any taxable supply that you make.

Taxable supply

You make a taxable supply when you satisfy the requirements of section 9-5, which states:

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.

When the Property is sold, the supply would be made for consideration, the supply will be of property located in Australia (and therefore connected with the indirect tax zone), and you will not be registered for GST.

We therefore need to examine whether you are 'carrying on an enterprise', which will satisfy the requirements under paragraph 9-5(b) and are you required to be registered under paragraph 9-5(d).

Enterprise

The term 'carrying on an enterprise' is defined in the GST Act.

Section 9-20 provides that an enterprise includes:

•         an activity or series of activities done in the form of a business (paragraph 9-20(1)(a));

•         an adventure or concern in the nature of trade (paragraph 9-20(1)(b)); or

•         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 (paragraph 9-20(1)(c)).

In your case, with respect to satisfying the requirements of paragraph 9-5(b), you derive income from activities you carry on at the Property. The first involves enterprise type. The second involves enterprise type. These activities satisfy both paragraph 9-5(b) and subsection 9-20(1). These enterprises will cease for you when the property is sold, if they have not ceased prior to the sale, and therefore paragraph 9-5(b) would be satisfied.

Termination of an enterprise

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 relevantly provides at paragraph 28 that a supply which you make in the course of terminating an enterprise is a supply which is made in the course or furtherance of the enterprise which you carry on.

Your supply of the Property by way of sale will terminate your enterprise type and enterprise type enterprises if they have not already ceased prior to sale.

Finally, as you are not registered for GST, we will consider paragraph 9-5(d) and whether you will be required to be registered for GST when you sell the Property.

GST registration

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

•         you are carrying on an enterprise; and

•         your GST turnover meets the registration turnover threshold.

In your case, and according to section 23-15, your GST registration turnover threshold will be expected to exceed the $75,000 turnover threshold. The proceeds from the sale of the Property, together with any income from your enterprise type and enterprise type enterprises in the relevant 12-month period, will be likely to exceed the turnover threshold, thereby meeting the requirement to be registered for GST purposes.

According to Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) certain types of assets, such as rental properties, business plant and machinery, the family home, family cars and other assets are considered as investment assets. These assets are purchased with the intention of being held for a reasonable period of time, as income-producing assets or for the pleasure or enjoyment of the person. The mere disposal of these investment and private assets does not amount to trade. Assets can change their character from investment to trade, however these assets cannot be held at the same time for both purposes.

Further section 188-25 excludes certain supplies made when working out your projected turnover. Section 188-25 requires you to 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 solely as a consequence of:

-      ceasing to carry on an enterprise; or

-      substantially and permanently reducing the size or scale of an enterprise.

Goods and Services Tax Ruling GSTR 2001/7: meaning of GST turnover including the effect of section 188-25 on projected GST turnover (GSTR 2001/7) explains that tangible 'Capital assets' can include the following items that are retained by you for income producing purposes:

•         your factory, shop, or office;

•         your land on which they stand;

•         fixtures and fittings;

•         plant, furniture, machinery; and

•         motor vehicles.

For the purposes of section 188-25 a supply is made, or is likely to be made, 'solely as a consequence' where the supply is made only as a result of an enterprise ceasing, or the substantial and permanent reduction in size or scale of an enterprise.

GSTR 2001/7 provides the following relevant example:

Example 1: Ceasing to carry on an enterprise

48. James, a grazier, aged seventy, decides to retire from his farm. He holds a clearing sale and sells all his livestock, machinery and implements to various buyers. He receives $80,000 from the sale that will be included in his current GST turnover. He is not registered for GST, as his GST turnover from selling livestock is usually around $35,000.

49. If James has a GST turnover of $75,000 or more he is required to be registered for GST. Although he normally would have sold some of this livestock in his day to day operations, the whole herd has been sold at this time solely as a consequence of ceasing to carry on his enterprise. The effect of subparagraph 188-25(b)(i) is that the $80,000 is excluded from his projected GST turnover.

50. An objective assessment of James' projected GST turnover is below $75,000 taking into account his age and the permanent nature of his decision. His current GST turnover is above $75,000 but because his projected GST turnover is below $75,000, his GST turnover does not meet the registration turnover threshold. Thus, James is not required to register for GST.

In your case, the application of section 188-25 and the principles outlined in GSTR 2001/7 would mean the Property is considered to be a capital asset and the income from the sale of the Property will be disregarded when calculating your projected GST turnover for registration purposes.

Accordingly, you will not be required to register for GST when you sell the Property. Paragraph 9-5(d) will not be satisfied. Therefore, your supply of the Property will not be a taxable supply under section 9-5. The sale will be outside the scope of GST.