Edited version of private advice

Authorisation Number: 1052296881262

Date of advice: 9 September 2024

Ruling

Subject: GST - sale of real property

Question

Is the sale of a property a taxable supply and therefore subject to GST under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

This ruling applies for the following period

1 July 20YY - 30 June 20YY

Relevant facts and circumstances

Entity A (you) is not currently registered for GST.

You have owned the property since 19YY. The property originally comprised of land and a dwelling (brick building with iron roof).

Prior to 20YY you leased the property to a related entity, that carried on a business on the property. You were registered for GST from 20YY.

As of 20YY the property has been vacant. Since 20YY, you have:

i)             demolished the dwelling and

ii)             undertook various remedial work relating to the underlying land.

It cost you $X to demolish and complete the EPA clean up. You did not claim GST input credits on the demotion or remedial costs to clear the land prior to engaging in a sales contract.

You have entered a contract to sell your property. The property is vacant land, and the purchaser intends to develop the land.

The property has not yet settled.

You own and lease residential premises.

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 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 40-75 (1)

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

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

Does Division 165 apply to this private ruling?

No.

Reasons for decision

An entity makes a taxable supply where all the requirements of section 9-5 are satisfied.

Section 9-5 provides that 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 Australia; 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.

The supply of the property is a taxable supply where all the requirements in section 9-5 are satisfied.

We will now consider whether sale of the property satisfies all the requirements in section 9-5.

You intend to sell the property for consideration as stipulated in the sales contract.

The term 'enterprise' is defined in section 9-20 and includes 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.

The term 'enterprise' is defined in subsection 9-20(1) to include, among other things, an activity, or series of activities, done:

•         in the form of a business, or

•         in the form of an adventure or concern in the nature of trade; ...

Consequently, as you lease residential properties you are conducting an enterprise of leasing property.

You are an Australian resident, and the sale of the property is in Australia.

The final requirement under section 9-5 is that you are registered for GST or required to be registered. As you were not registered for GST at the time you made the supply of the property, it must be determined whether you were required to be registered for GST under section 23-5.

You are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold.

Section 188-10 states:

(1)         You have a GST turnover that meets a particular 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.

Under section 188-15 of the GST Act:

(1)         Your current GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during the 12 months ending at the end of that month, other than:

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

In your case, the income you will derive in the month of settlement, and the preceding 11 months was income derived from the sale of the property which will be over $75,000.

Under section 188-20 of the GST Act:

(1)         Your projected GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during that month and the next 11 months, other than:

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

In working out your projected GST turnover, section 188-25 of the GST Act says to disregard:

(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:

(i)          ceasing to carry on an enterprise; or

(ii)          substantially and permanently reducing the size or scale 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 (GSTR 2001/7) includes guidance on the meaning capital assets. GSTR 2001/7 explains:

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 [...]

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. [Footnotes excluded].

The proceeds from the sale of the property are capital in nature. Therefore, for the purpose of GST registration, the proceeds from the sale of the property are not included when calculating your GST turnover. For completeness, the supply of leasing residential premises is input taxed under section 40-35 and are also excluded from your GST turnover under section 188-20(1)(a).

As you were not registered for GST, nor required to be registered at the time you made a supply of property, you have not satisfied all the requirements of section 9-5. The sale of the property is not a taxable supply under section 9-5.