Private ruling: Property partnership and GST
Date of advice: 15 November 2018
Published: March 2019
Ruling period: November 2018 to November 2022

Ruling: Q1: Is the supplier of the Property, a partnership constituted by the taxpayers? | A1: Yes | Q2: Is the supplier of the Property required to be registered for GST? | A2: No | Q3: Will the supply of the Property be a taxable supply, including because the supplier of the Property is carrying on an enterprise in respect of the Lease or the disposal of the Property? | A3: No | Q4: If the supplier of the Property is required to be registered, will the supply of the Property be a supply of a going concern? | A5: 

Relevant facts and circumstances: The taxpayers are the registered proprietors of a Property. The taxpayers own the Property beneficially as joint tenants. The taxpayers do not hold title to the Property subject to any trust. The taxpayers leased the Property. The rent payable under the Lease is $X per month. There has never been any rent paid by the lessee under the Lease. The taxpayers sold their ownership interest in the Property under the terms of a Contract of Sale. Under the Contract, the taxpayers and the purchaser have agreed in writing that the supply of the Property is of a going concern. The Contract was signed for and on behalf of the taxpayers by a lawyer acting for the taxpayers. The Property is sold under the Contract subject to the lease. The taxpayers have an ABN as a partnership. The lessee also has an ABN as a sole trader and is registered for GST purposes.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Division 23 | A New Tax System (Goods and Services Tax) Act 1999 Section 184 | A New Tax System (Goods and Services Tax) Act 1999 Section 188

Reasons for decision: Detailed Reasoning - Entity: Partnership, for the purposes of the GST Act, has the meaning given by section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997). Partnership is defined in section 995-1 of the ITAA 1997 to include, relevantly, an association of persons (other than a company or a limited partnership) in receipt of ordinary or statutory income jointly. This is referred to as a ‘tax law partnership’. Goods and Services Tax Ruling GSTR 2004/6 Goods and services tax: tax law partnerships and co-owners of property states: To be in receipt of income jointly, it is not necessary to have actually received the income. We consider that there is receipt of income jointly if there is a joint entitlement to income. Therefore, although payments had not been received throughout the period of the lease, there was a contractual right to receive rent. This was sufficient to constitute the taxpayers as a tax law partnership. | Detailed Reasoning - Requirement to register: 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 We consider that, for GST purposes, a tax law partnership exists from the time that the persons jointly commence an activity from which the income is or will be received jointly. Therefore, there was a leasing enterprise in existence from the commencement of the lease of the Property. You must register for GST if your enterprise has a GST turnover of $75,000 or more. You reach the GST turnover threshold if either: ● your 'current GST turnover' (your turnover for the current month and the previous 11 months) totals $75,000 or more and the Commissioner is not satisfied that your 'projected GST turnover' (your total turnover for the current month and the next 11 months) is below the turnover threshold; or ● your projected GST turnover is at or above the turnover threshold. In working out your projected GST turnover, you don't include amounts you receive for the sale of a capital asset or for any sale you made, or are likely to make, solely as a consequence of ceasing or substantially and permanently reducing the size of your business. The Property was the profit yielding subject of the enterprise and, therefore, a capital asset of the taxpayers. This means that the value of the sale of the Property is disregarded when calculating the taxpayers’ projected GST turnover. Based on the assumptions, aside from the sale of the Property, the projected supplies of the partnership would be less than $75,000. As such the projected turnover will be less than $75,000 and the partnership is not required to be registered for GST. Given the taxpayers were not required to be registered for GST, the sale of the Property will not be a taxable supply under s9-5 of the GST Act.