Private ruling: GST and the sale of real property
Date of advice: 23 July 2019
Published: October 2019
Date scheme commenced: · Several years ago, you purchased a property situated in Australia (the Property), with the intention of renting it out.

Ruling: Q1: Will you be required to remit GST on the sale of your rental property (Property B)? | A1: No.

Relevant facts and circumstances: · Several years ago, you purchased a property situated in Australia (the Property), with the intention of renting it out. · The Property comprised land and a house at the time of settlement. · Later, you engaged a builder to construct another house on the land (Property B) for rental. The tenant moved in as soon as the building was completed. · Property B continues to be rented. · The original house (Property A) has been rented and continues to be rented. · The whole Property has been rented out for the entire period of your ownership, except for a short period of vacancy for tenant changeover. · Both Property A and Property B are externally managed through a rental agent. · Due to changed circumstances, and due to bank requirements, you are required to liquidate a property. As Property B is newer and more attractive as a quicker sale prospect, you are considering selling Property B. · You are currently not registered for the goods and services tax (GST). · Apart from the ongoing leasing of the residential premises Property A and Property B: o you currently do not carry on any other enterprise or make any other supplies; o you do not plan to carry on any other enterprise or make any other supplies in the next twelve months up to and following the sale of Property B.

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 paragraph 9-5(d), | A New Tax System (Goods and Services Tax) Act 1999 section 23-5, | A New Tax System (Goods and Services Tax) Act 1999 subsection 188-10(1), and | A New Tax System (Goods and Services Tax) Act 1999 section 188-25.

Reasons for decision: Summary: In this reasoning, GST is payable on taxable supplies. You make a taxable supply if you meet the requirements of section 9-5, which states: 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 indirect tax zone; 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. GST registration Section 23-5 provides that an entity is required to be registered for GST purposes if both of the following requirements are met: · it is carrying on an enterprise; and · its GST turnover meets the registration turnover threshold (which is currently $75,000 for entities other than non-profit entities). Registration turnover threshold Subsection 188-10(1) provides that you have a GST turnover that meets the registration turnover threshold if: · your current GST turnover is at or above the registration turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the registration turnover threshold, or · your projected GST turnover is at or above the registration turnover threshold. Goods and Services Tax Ruling GSTR 2001/7 explains the meaning and calculation of the GST turnover. GSTR 2001/7 is available on our website at ato.gov.au In calculating your GST turnover under Division 188 certain supplies are excluded. Section 188-25 provides that when calculating your projected GST turnover, you do not include any supplies made, or likely to be made by you: · by way of transfer of ownership of a capital asset, or · solely as a consequence of ceasing an enterprise or substantially and permanently reducing the size or scale of your enterprise. 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. In your case, you are carrying on an enterprise of leasing residential premises. Property B has been used by you to earn rental income. We consider that Property B is a capital asset of yours. The sale of Property B will be a transfer of ownership of a capital asset by you. Therefore, the sale of Property B will be excluded from the calculation of your projected GST turnover. On the facts provided, your GST turnover will not meet the registration turnover threshold at the time of sale of Property B. You will not satisfy all the requirements of section 23-5, and you will not be required to be registered for GST at the time of the sale of Property B. Therefore, the requirement in paragraph 9-5(d) for a taxable supply will not be met. As not all of the requirements of a taxable supply under section 9-5 will be met at the time of sale, the sale will not be a taxable supply. Where the sale is not a taxable supply, there is no GST included in the price and there is no requirement to remit GST on the sale. Consequently, you will not be required to remit any GST on the sale of Property B.

unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) | all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act