Private ruling: Requirement to register for GST
Published: December 2013

Ruling: Q1: 1. Is the partnership required to be registered for GST when it sells the property? 2. Is the sale of the property a taxable supply? | A1: 1. No, the partnership is not required to be registered for GST when it sells the property. 2. No, the sale of the property is not a taxable supply.

Relevant facts and circumstances: You are a partnership. You have an ABN, but are not registered for GST. You have owned a property for a long time. The property contains approximately some acreage of land. The property has been used to earn income from agistment since the property was purchased by the partnership. The property contains a dwelling. The land was previously zoned rural, but was rezoned residential recently. The rental and agistment income for the property has never exceeded $75,000 per annum. You intend to sell the property to a developer. The developer will pay you in installments a certain sum of money which will be in excess of $75,000. You will continue to operate the agistment business up until settlement. The current agistment leases will continue after the purchaser takes possession of the property.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 7-1 | Section 9-5 | Section 23-5 | Section 23-15 | Section 188-20 | Section 188-25 | A New Tax System (Goods and Services Tax) Regulations 1999 | Regulation 23-15.01

Reasons for decision: Summary: Section 7-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that GST is payable on taxable supplies. Taxable supplies are defined at section 9-5 of the GST Act, 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 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. (Items marked with an asterisk are defined at section 195-1 of the GST Act). The property transaction that you are proposing to make will be made for consideration, in the course or furtherance of an enterprise that you carry on, the supply is connected with Australia and you are not registered for GST. Therefore what remains to be determined here is whether you are required to be registered for GST. Section 23-5 of the GST Act provides that you are required to be registered under this Act if: (a) you are *carrying on an enterprise; and (b) your *GST turnover meets the *registration turnover threshold. | Detailed Reasoning - Enterprise: You are carrying an enterprise of agistment. Therefore, the sale of the property (which is a capital asset of that enterprise) is considered to be made in the course of an enterprise that you carry on. Turnover Section 23-15 of the GST Act provides that the GST registration turnover threshold is either $50,000 or such higher amount as the regulations specify. Regulation 23-15.01 of A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) provides that the registration turnover threshold other than for non-profit bodies is $75,000. You have advised that your GST turnover from your agistment and leasing activities does not exceed $75,000 per annum. You are therefore not required to be registered for GST. However, what needs to be determined here is whether your GST turnover will exceed the registration turnover threshold as a consequence of the sale of the property. Section 188-10 of the GST Act provides when an entity's GST turnover meets or does not exceed a turnover threshold. Pursuant to section 188-10 of the GST Act, even where the current GST turnover of an entity meets the registration turnover threshold, if the projected GST turnover is below the registration turnover threshold, that entity is taken to have not met the registration turnover threshold. Therefore, in order to determine whether your GST turnover will exceed the registration turnover threshold as a consequence of the sale of the property, we need to understand what is meant by current GST turnover and the projected GST turnover. Current GST turnover is defined in section 188-15 as follows: Your current GST turnover at a time during a particular month is the sum of the *values of all the supplies that you have made, or are likely to make, during the 12 months ending at the end of that month, other than: (a) supplies that are *input taxed; or (b) supplies that are not for *consideration (and are not *taxable supplies under section 72-5); or (c) supplies that are not made in connection with an *enterprise that you *carry on. Projected GST turnover is defined in subsection 188-20(1) of the GST Act, which states: Your projected GST turnover at a time during a particular month is the sum of the *values of all the supplies that you have made, or are likely to make, during that month and the next 11 months, other than: (a) supplies that are *input taxed; or (b) supplies that are not for *consideration (and are not *taxable supplies under section 72-5); or (c) supplies that are not made in connection with an *enterprise that you *carry on. However, section 188-25 of the GST Act specifically provides that the transfer of capital assets is to be disregarded when working out your projected GST turnover. It states: In working out your *projected GST turnover, disregard: (a) any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours; and (b) any supply made, or likely to be made, by you solely as a consequence of: (i) ceasing to carry on an *enterprise; or (ii) substantially and permanently reducing the size or scale of an enterprise. The sale of the property in this case is a capital asset of your agistment enterprise. The term 'capital assets' is discussed in 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 (GSTR 2001/7). Paragraph 32 states that '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". An example of how this works is provided at paragraphs 53 to 57 of GSTR 2001/7. 53. Alan, a retiree, owns all three shops located next to a suburban railway station. Each of the shops is rented to tenants whose weekly tenancies are to terminate on 14 December 2001. The rent payable for each of the three shops is $200 per week. The railway department is planning an expansion of the station. Alan sells the shops with vacant possession to the railway department for $200,000. Alan's only enterprise is renting the shops. He is not registered for GST. He is not intending to carry on any other enterprise in the next 12 months. Settlement is to take place on 20 December 2001. 54. Alan's current GST turnover as calculated in December 2001 is the sum of the values of all the supplies that he has made or is likely to make during the 12 months ending on 31 December 2001. Alan has no supplies that are excluded under sections 188-15 or 188-20 (such as input taxed supplies). 55. Alan's current GST turnover is 50 weeks rent of $600 per week (up to 14 December 2001) plus the $200,000 from the sale of the shops. That is, a total of $230,000. Alan's current GST turnover is above the registration turnover threshold. 56. Alan's projected GST turnover is the sum of the values of all the supplies that Alan has made or is likely to make in December 2001 and up to 30 November 2002. Alan has made or will make supplies of 2 weeks rent of $600 per week (up to 14 December 2001) plus the $200,000 from the sale of the shops. His projected GST turnover calculated under section 188-20 is $201,200. 57. In selling the shops, Alan will dispose of a capital asset in addition to ceasing to carry on his enterprise. Although the supply satisfies the conditions under both paragraph 188-25(a) and 188-25(b), those proceeds are excluded only once when calculating projected GST turnover. (Refer to paragraph 30.) Alan can disregard the $200,000 from the sale of the shops. Alan calculates his projected GST turnover as $1200. As Alan has calculated his projected GST turnover on a reasonable basis to be below the registration turnover threshold, his GST turnover does not meet that particular turnover threshold. He is not required to register for GST. As provided in paragraph 55 of the GSTR 2001/7, the sale proceeds of a capital asset is taken into account when calculating the current GST turnover. Accordingly, at the time you sell the property you will exceed the current GST turnover threshold. However, as provided in the above paragraphs of GSTR 2001/7 we can conclude that the sale of the property (which is a capital asset of your agistment enterprise) should be disregarded when calculating the projected GST turnover. As your projected GST turnover will not exceed $75,000, your GST turnover will be below the registration turnover threshold and as such are not required to register for GST. As you are not registered, nor required to be registered, for GST, then the supply of the property will not be a taxable supply. Consequently no GST is payable on the sale of your property.