Private ruling: GST and sale of property
Date of advice: 8 June 2018
Published: August 2018

Ruling: Q1: Does your sale of property situated at a specified location constitute a taxable supply as defined in section 9-5 of the A New Tax System (Goods and Services Tax Act) 1999 . | A1: No

Relevant facts and circumstances: You have an Australian Business Number. You are not, and have never been, registered for GST. You acquired xx acre parcel of land in the 1970’s situated at a specified location (Property 1). You constructed your principal residence on Property 1 in the early 1980’s. Property 1 also contains sheds and water storage dams. Property 1 was used from the late 1970’s to the early 2000’s to grow vegetables for consumption in the local market. When GST commenced on 1 July 2000, the activities on Property 1 were scaled down and did not generate sufficient income to meet the GST registration turnover threshold. Currently, approximately 80% of Property 1 is being leased for the purpose of vegetable farming. Rental income is approximately $xx,xxx per annum. You also own another property (Property 2). Property 2 generates rent from the leasing of farmland of approximately $ x,xxx per annum and also approximately $ xx,xxx per annum from the leasing of residential premises. No other business income is generated. You have been approached by a prospective purchaser (Developer) who has offered to purchase Property 1. The Developer has also approached numerous other neighbouring property owners with similar offers with the intention of developing a large industrial estate. You do not envisage that Property 1 will be subdivided prior to settlement with settlement anticipated to take place in approximately x years. You will not be undertaking any capital works on Property 1 prior to settlement. The Developer may have access to Property 1 prior to settlement to undertake the studies and testing that is required to lodge an application with the relevant Council and the Department of Planning to have this land rezoned for commercial/industrial use. It is not envisaged at this point that any capital works will be undertaken by the Developer on Property 1 prior to settlement.

Relevant legislative provisions: A New Tax System (Goods and Services Tax Act) 1999 Section 9-5 | Section 9-20 | Section 9-40 | Section 23-5 | Division 188 | Section 188-10 | Paragraph 188-15(1)(a) | Paragraph 188-15(1)(b) | Paragraph 188-25(a) | Section 195-1

Reasons for decision: Summary: Note: In this reasoning, unless otherwise stated, ● all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) ● reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au Section 9-40 provides that you are liable for GST on any taxable supplies that you make. Section 9-5 provides 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 for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. The question in this case is whether you are making the supply of Property 1 in the course or furtherance of an enterprise that you carry on. If so, as you are not registered for GST, a further question will be whether you are required to be registered for GST. Section 9-20 provides that the term ‘enterprise’ includes, among other things, an activity or series of activities done: ● in the form of a business; ● in the form of an adventure or concern in the nature of trade; ● on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property. 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’. In this case, you acquired Property 1 in the 1970’s and currently lease approximately 80% of Property 1 for the purpose of vegetable farming. The remainder of Property 1 is used as your primary place of residence. In addition, you also lease a portion of another property (Property 2) for use as farmland with the remainder of Property 2 being leased for residential purposes. Given these facts, we consider that for GST purposes you carry on an enterprise, being activities done on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property. As you are not currently registered for GST, the next issue to consider is whether you are required to be registered for GST. 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 (currently $75,000). As discussed above, it is considered that the rental of the Property constitutes an ‘enterprise’ for GST purposes. The meaning of GST turnover is contained in Division 188. Section 188-10 provides that your GST turnover will meet the registration turnover threshold if: a) your current GST turnover is at or above the threshold ($75,000) and the Commissioner is not satisfied that your projected GST turnover is below $75,000, or b) your projected GST turnover is at or above $75,000. Your ‘current GST turnover’ is the sum of your turnover for the current month and the previous 11 months. Your ‘projected GST turnover’ is the sum of your turnover for the current month and the next 11 months. Paragraphs 188-15(1)(a) and 188-20(1)(a) provide that input taxed supplies are disregarded when calculating your current and projected turnovers respectively. As such, in regard to Property 2 your input taxed supplies of leasing residential premises are disregarded when determining whether you meet the GST registration turnover threshold. Furthermore, paragraph 188-25(a) provides that when calculating your projected turnover you disregard any supply made, or likely to be made, by way of transfer of ownership of a capital asset of yours. As such, we also need to consider whether your sale of Property 1 is excluded from the calculation of your projected GST turnover. 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 discusses what is regarded as a ‘capital asset’ at paragraphs 31 to 36. Whilst not specifically defined for GST purposes, the term ‘capital assets’ generally refers to those assets that make up the profit yielding subject of an enterprise and may be described as ‘the business entity, structure or organisation set up or established for the earning of profits’. 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. Given the facts in this case we consider the sale of Property 1 constitutes the transfer of a capital asset for the purposes of section 188-25 and will therefore be disregarded when calculating your projected GST turnover. As the proceeds from the sale of your Property are disregarded when calculating your projected GST turnover, your projected GST turnover will be below the GST registration turnover threshold and you are not required to be registered. Your current GST turnover, being the turnover generated from leasing the farmland on Property 1 and Property 2, will also not meet the GST registration turnover threshold. | Detailed Reasoning - Conclusion: GST is payable on any taxable supplies that you make. One of the requirements of a taxable supply include that you are registered or required to be registered for GST.