Private ruling: GST and the sale of commercial property
Date of advice: 20 May 2020
Published: July 2020
Ruling period: 1 July 2019 - 30 June 2020
Date scheme commenced: 30 October 2016

Ruling: Q1: Are you liable for GST pursuant to section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 on the sale of a commercial unit situated at a specified location? | A1: No

Relevant facts and circumstances: You are not and have never been registered for GST. You carry on an enterprise of leasing commercial property. On dd/mm/yyyy (contract date) you purchased property situated at a specified location (the Property). Settlement date was dd/mm/yyyy. You subsequently leased the Property with leasing managed by a third party. The Property is a commercial/office unit. You do not own any other real property. Turnover generated from leasing the Property was $xx,xxx for the financial year ending 30 June 2019. You also derived income by way of distribution from a related discretionary trading trust and interest received ($x,xxx and $x,xxx respectively) for the financial year ending 30 June 2019. You entered into a contract to sell the Property on dd/mm/yyyy. Settlement occurred on dd/mm/yyyy.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | Paragraph 9-5(d) | Section 9-20 | Paragraph 9-20(1)(c) | Section 9-40 provides that you are liable for GST on any taxable supplies that you make. | Section 23-5 | Paragraph 23-5(a) | Subsection 188-10(1) | Section 188-15 | Section 188-20 | Section 188-25

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 ato.gov.au Section 9-40 provides that you are liable for GST on any taxable supplies that you make. Section 9-5 provides that 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 to the indirect tax zone (Australia); and (d) you are registered or required to be registered for GST. However, the supply will not be a taxable supply to the extent the supply is GST-free or input taxed. | Detailed Reasoning - Enterprise: The term 'enterprise' is defined in section 9-20 and includes 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(c)). The leasing/renting of the Property (commercial office unit) would fall within the scope of an 'enterprise'. The sale of the Property would be considered to be done in the course of carrying on that enterprise. As you are not registered for GST, the next issue to consider is whether you were required to be registered. | Detailed Reasoning - 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 meets the registration turnover threshold (currently $75,000). As discussed above, your activities of renting the commercial office unit and subsequent sale constitutes an enterprise thus satisfying paragraph 23-5(a). The next issue to consider is whether your GST turnover is $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. '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. '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. Section 188-25 provides that in calculating your projected GST turnover, you disregard any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours. 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 this issue. The meaning of 'capital assets' is discussed at paragraphs 31 to 36 of GSTR 2001/7: 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. In your case the Property is referred to as the structural asset used solely for rental purposes. The supply of the Property is excluded in the calculation of your 'projected GST turnover'. This is because the property retains its character of a capital asset at the time of supply. Given the facts of this case, neither your current nor projected GST turnover meet the registration turnover threshold of $75,000 and you were not required to register for GST pursuant to section 23-5. | Detailed Reasoning - Conclusion: You did not make a taxable supply as defined in section 9-5 when you sold the Property as all of the relevant criteria were not met (paragraph 9-5(d)). As such, you are not liable for GST pursuant to section 9-40 in relation to the sale of the Property.