Edited version of private advice

Authorisation Number: 1052249987319

Date of advice: 23 May 2024

Ruling

Subject: GST - sale of a residential property

Question

Is the Partnership making a taxable supply when it sells the Property?

Answer

No.

Section 9-5 of the GST Act provides that an entity makes a taxable supply, if:

(a)  the entity makes the supply for consideration

(b)  the supply is made in the course or furtherance of an enterprise that the entity carries on

(c)   the supply is connected with Australia, and

(d)  the entity is registered or required to be registered for GST.

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

In this case the Partnership is not registered for GST and based on the information provided, it is not required to be registered for GST. This is because currently the Partnership is only making input taxed supplies, which are disregarded when calculating the current and projected GST turnovers of the Partnership. Additionally, the sale of the Property by the Partnership is a sale of a capital asset and therefore disregarded when calculating the Partnership's projected GST turnover. Accordingly, as the sale does not meet all the requirements of section 9-5 of the GST Act, the Partnership is not making a taxable supply when it sells the Property.

This ruling applies for the following

ddmmyyyy to ddmmyyyy

Relevant facts and circumstances

Two co-owners purchased a specified residential property on a specified date.

The co-owners rented the property after its acquisition.

The Partnership of the co-owners registered for ABN and GST with effect from a specified date, based on the ATO information implying that a construction project may be viewed as a business.

The co-owners applied for a development approval to build new residential premises on the property. The development application was approved on a specified date.

On a specified date, the co-owners obtained a line of credit of a specified amount to build the residential premises.

The tenant moved out of the property on a specified date.

The construction commenced on a specified date and was complete by a specified date.

Upon completion, the residential premises were immediately listed for rent with a real estate agent on a specified date. The residential premises have been rented out to tenants since a specified date.

The Partnership has not claimed any input tax credits for construction costs of the residential premises and has been lodging NIL business activity statements. The construction costs have been treated as capital acquisitions for income tax purposes.

The intention of the co-owners was to construct the residential premises for long term rental purpose. However, due to change of circumstances, the Partnership is considering selling the Property to reduce debt and costs.

The Partnership is not carrying on any other enterprise. The only enterprise carried on by the Partnership is leasing of residential premises.

The Partnership has cancelled its GST registration and backdated the cancellation to the date of effect of the registration.

This is the first time that the co-owners have developed a property.

The co-owners own other residential rental properties jointly.

The co-owners are not registered for ABN or GST in their own right.

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 23-5.

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.