Edited version of private advice

Authorisation Number: 1052392898229

Date of advice: 9 May 2025

Ruling

Subject: GST - sale of real property

Question 1

Will you, Entity A, be making a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you sell a warehouse situated at address (the Property)?

Answer 1

No.

This ruling applies for the following periods:

DDMMYYYY to DDMMYYYY

The scheme commences on:

The date of when the private ruling is issued.

Relevant facts and circumstances

Entity A as the trustee for Trust (You) are currently not registered for GST.

You were previously registered for GST until DDMMYYYY. The reason for the cancellation of your GST registration was that your GST turnover fell and has since remained below the required registration threshold, therefore, you are not required to be registered.

On DDMMYYYY, you purchased a small warehouse situated at address (the Property) for $XX, inclusive of stamp duty and legal fees.

No monies were borrowed to finance the purchase of the Property.

Your original intention when you acquired the Property was to treat it as an investment property to generate rental income.

The Property is described as a small warehouse with an approximate area of XX, containing a small office and a toilet.

No improvements have been made to the Property during the period of your ownership.

The Property had been rented out since its acquisition.

The current rental income for the Property is $XX per annum.

The Property does not currently have a fixed-term lease agreement in place, but rather, it is on a monthly tenancy agreement.

You are seeking to simplify your affairs and to dissolve the family trust by selling the Property, which is the sole remaining asset of the Trust.

You have yet to enter into a sale agreement with a purchaser and the sale of the Property will be dependent on the outcome of this private ruling request.

The estimated selling price of the Property is $amount.

Your primary source of income is the rental income you derive from the lease of the Property. The other source of your income is minor amounts of interest income.

You do not own any other properties.

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 188-10

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

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 the supply must not be GST-free or input taxed.

Division 38 and 40 provide for certain supplies to be GST-free and input taxed respectively.

In this instance, we consider that the sale of the Property would not be GST-free or input taxed. This means your supply will be taxable if the requirements specified in paragraphs 9-5(a) to (d) are satisfied.

Based on the facts of your case, you will be selling the Property for consideration, being the sale price of the Property. The supply will be connected with the indirect tax zone because the Property is located in Australia. However, you are not registered for GST.

Therefore, the primary issue that needs to be determined is whether the supply of the Property will be made in the course or furtherance of an enterprise you carry on (paragraph 9-5(b)). If so, a further issue to be considered is whether you are required to be registered for GST (paragraph 9-5(d)).

Enterprise

The term 'enterprise' is defined for GST purposes under section 9-20 and includes, among other things, 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)).

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

This definition ensures that activities done in the course of the commencement or termination of the enterprise are included in determining whether the activities of the entity amount to an enterprise.

The leasing of a property will fall within the scope of an 'enterprise' under paragraph 9-20(1)(c).

In your case, you are carrying on an enterprise of leasing as you acquired the Property and have since leased it on a regular or continuous basis. The subsequent sale of the Property will be an activity done in the course or furtherance (which includes the termination) of your leasing enterprise and thus, paragraph 9-20(1)(c) is satisfied.

GST registration

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 threshold turnover meets the *registration turnover threshold.

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

As discussed above, your activities fall within the scope of 'carrying on an enterprise', thus satisfying paragraph 23-5(a) above.

The next issue to consider is whether your GST turnover meets the registration turnover threshold of $75,000 or more.

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 $75,000 and the Commissioner is not satisfied that your projected GST turnover is less than $75,000; or

(b)           your projected GST turnover is at or above $75,000.

Your 'current GST turnover' is defined in section 188-15 as the sum of the values of all of your supplies made in a particular month and the preceding 11 months other than:

(a)           supplies that are input taxed

(b)           supplies that are not for consideration

(c)           supplies that are not made in connection with an enterprise that you carry on.

Your 'projected GST turnover' is defined in section 188-20 as the sum of the values of all of your supplies made in a particular month and the following 11 months other than:

(a)           supplies that are input taxed

(b)           supplies that are not for consideration

(c)           supplies that are not made in connection with an enterprise that you carry on.

In your case, it is necessary to determine whether your projected GST turnover meets the registration turnover threshold.

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:

(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) explains the meaning of 'capital assets' 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 of this Ruling.

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.

Paragraphs 258 and 259 of 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) contain guidance on the distinction between trading/revenue assets and investment/capital assets. While MT 2006/1 discusses these principles in the context of entitlement to an ABN, these principles in paragraphs 258 and 259 have equal application to determining whether the sale of something is a revenue or capital asset for GST registration purposes. Paragraphs 258 and 259 state the following:

Trade v. investment assets

258.               United Kingdom cases categorise assets as either trading assets or investment assets. Assets purchased with the intention of holding them for a reasonable period of time, to be held as income producing assets or to be held for the pleasure or enjoyment of the person, are more likely not to be purchased for trading purposes.

259.               Examples of investment assets are rental properties, business plant and machinery, the family home, family cars and other private assets. The mere disposal of investment assets does not amount to trade.

In your case, although a profit may arise as a result of selling the Property, your acquisition of the Property was done with the intention of treating it as an investment property and not with the intention of reselling it at a profit (not a trading/revenue asset). This is evident through your use of the Property as an income producing asset for a prolonged period of time - you have been deriving leasing income from the Property since its purchase in XXXX As such, we consider that the sale of the Property will constitute the transfer of a capital asset for the purposes of section 188-25. Accordingly, the proceeds from the sale will be excluded from the calculation of your projected GST turnover.

Therefore, in weighing up all the relevant facts of this case, we consider that your projected GST turnover will be below $75,000 and under section 23-5 you are not required to be registered for GST in relation to the sale of the Property.

Conclusion

The sale of the Property will not be a taxable supply as all the elements of section 9-5 have not been satisfied. GST is therefore not payable on the sale under section 9-40.