Private ruling: GST and the sale of residential premises
Date of advice: 19 December 2018
Published: April 2019

Ruling: Q1: Was the sale of the Property located in Australia, a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) ? Answer Yes

Relevant facts and circumstances: On ddmmyyyy Entity A entered into a contract to acquire a vacant residential lot (the Property). Settlement occurred on ddmmyyyy. The purchase price of the Property was $00.00. In mmyyyy Entity A and their then spouse Entity B borrowed funds to buy and develop the Property. The loan was taken out in both names however the Property was purchased in Entity A’s name only. Their intention in acquiring the property was to build a rental property and lease it out for a minimum of 5 years before they sold it. Neither of them was registered for GST in their own right or together. Entity A claimed the construction costs in their tax return for the financial years ending 30 June yyyy and yyyy. The cost of construction was $X.00 and there were other costs of $XX.00. On ddmmyyy Entity A and Entity B separated and entered into a Financial Agreement under the Family Law Act No 53. This agreement was dated ddmmyyy. Under this agreement they were required to sell the Property within two years of the date of the Financial Agreement. Following the sale the debts were to be paid out and any profit or loss was to be split 50:50. The construction of the house on the Property was completed in mmyyyy and a sale contract was entered on the ddmmyyyy. Settlement of the property occurred on ddmmyyyy. The property sold for $XX.00.

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 188-25 and | A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision: Summary: Was the sale of the Property located in Australia, a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? Section 9-40 provides that you must pay GST on any taxable supply. Section 9-5 of provides that you make 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. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. Entity A sold the property for consideration, the supply of the Property occurred in Australia and the supply of the property will be neither GST-free nor input taxed. The property was owned by Entity A and he reported the expenses associated with the development in his tax return. Accordingly, we must determine whether Entity A is required to be registered for GST and whether the supply was in the course of an enterprise. | Detailed Reasoning - Required to be registered: Section 23-5 requires you to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration threshold. Entity A would meet the registration threshold if his projected turnover in a particular month and the following 11 months met or exceeded the registration threshold. The current registration threshold is $75,000. The Property was sold as new residential premises and would be a taxable supply if Entity A was required to be registered. The original intention in building the house was to lease. Prior to the completion of construction, the Entities determined that they would complete the house and sell it rather than lease it. The Entities carried out this intention and completed the construction and sold the property. We consider that the activities of completing the construction of the property with the intention of selling the house constituted an enterprise and the new residential premises was a revenue asset of that enterprise activity. As the supply was in the course of Entity A’s enterprise and the sale proceeds exceeded $75,000 Entity A was required to be registered and the sale of the property was a taxable supply. As Entity A was required to be registered and considered to be carrying on an enterprise Entity A was entitled to be registered for GST from the beginning of that enterprise and entitled to GST credits on their creditable acquisitions.