Private ruling: GST and partitioning of property
Date of advice: 29 August 2018
Published: October 2018

Ruling: Q1: Where specified name and specified name partition their interests in the property located at specified address will the supply by specified name of her 50% interest in specified address be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No. | Q2: Where specified name and specified name partition their interests in the property located at specified address will the supply by specified name of her 50% interest in specified address be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) | A2: No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. Specified name and specified name are not registered for GST either individually or in partnership. Specified address was gifted to specified name and specified name by their parents. The property was gifted to them on the specified date and they hold their interests as tenants in common. Specified names intended to deal with the property as separate individuals and not as a partnership. They entered into a contract to build specified number units on the blocks on specified date and the project was completed on the specified date. Specified name moved into one of the completed units on the specified date. This unit was known as specified address following subdivision. The property is their primary place of residence. They have no intention to sell the property. Specified name commenced renting out their unit on the specified date. Following subdivision on specified date this unit was called specified address. The rent from specified address has been and is being deposited into the bank account of specified names. Specified name intention is to keep the property as an investment. They hope to gift it to one of their children in the years to come. Subdivision of the land was completed on the specified date. This created specified addresses. Specified names remained equal co-owners in both properties as tenants in common at that time. Specified names intend to partition the property so that: ● specified name will own 100 per cent of specified address and ● specified name will own 100 per cent of specified address. Specified names have never done any developing of land previously either individually or in a partnership. Specified names are not involved in any other enterprises.

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 subsection 9-5(a) | A New Tax System (Goods and Services Tax) Act 1999 subsection 9-5(b) | A New Tax System (Goods and Services Tax) Act 1999 subsection 9-5(c) | A New Tax System (Goods and Services Tax) Act 1999 subsection 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 40-35(1) | A New Tax System (Goods and Services Tax) Act 1999 subsection 188-10(1) | A New Tax System (Goods and Services Tax) Act 1999 section 188-25

Reasons for decision: Summary: Where specified names partition their interests in the property located at specified address, will the supply by specified name of her 50% interest in specified address be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? 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 with the 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. For specified name supply, of her 50 per cent interest in specified address, to be a taxable supply all of the requirements in section 9-5 must be satisfied. One of the requirements for a taxable supply is that the supply is made in the course or furtherance of an enterprise that she carries on. The partitioning will result in specified name owning all of specified address which is her principle place of residence. Therefore, the supply of her 50 per cent interest in specified address is not made in the course or furtherance of an enterprise that she carries on. One of the requirements in section 9-5 is not satisfied. It follows that where the parties partition their interests specified name supply of her 50 per cent interest in specified address will not be a taxable supply. Where specified names partition their interests in the property located at specified address, will the supply by specified name of her 50% interest in specified address be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? For specified name supply, of her 50 per cent interest in specified address, to be a taxable supply all of the requirements in section 9-5 must be satisfied. One of the requirements for a taxable supply is that specified name is registered or required to be registered for GST. As specified name is not registered for GST we need to consider whether they are required to be registered for GST. GST registration 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, which is currently $75,000 for entities other than non-profit entities. Both of these criteria must be met if specified name is required to be registered for GST. We note that specified name carries on a leasing enterprise. In addition, we will consider whether specified name GST turnover meets the registration turnover threshold. Specified name will not be required to be registered if they do not meet the registration turnover threshold. 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. It is necessary to determine whether specified name projected GST turnover meets the threshold. Specified name is required to be registered for GST if her projected GST turnover is at or above $75,000. Specified name projected GST turnover is the sum of the values of all supplies made in a particular month plus the next 11 months. Relevantly supplies that are input taxed are disregarded when working out specified name projected GST turnover. Input taxed supplies Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5), provides guidance on what is considered to be residential premises to be used predominantly for residential accommodation for the purposes of sections 40-35 and 40-65. Subsection 40-35(1) provides that a supply of premises that is by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is input taxed if: (a) the supply is of *residential premises (other than a supply of *commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises); or (b) the supply is of *commercial accommodation and Division 87 (which is about long-term accommodation in commercial premises) would apply to the supply but for a choice made by the supplier under section 87-25. We consider that the supply of specified address by way of lease, hire or licence is input taxed under subsection 40-35(1). Therefore, any consideration for the lease of specified address is disregarded when working out specified name projected GST turnover. Supply of specified name interest in specified address In addition, we need to consider whether the sale of specified name 50 per cent interest in specified address is included in her projected GST turnover. 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. Capital asset The meaning of 'capital asset' is discussed in paragraphs 31 to 36 of 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 . The GST Act does not define the term “capital asset”. However, GSTR 2001/7 explains that 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. They 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. 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. Therefore, the character of an asset must be determined at the time of expected supply. In this case, specified name holds their 50 per cent interest in specified address as a capital asset. It follows then, that the disposal of her interest in specified address will be excluded from the calculation of her projected GST turnover. Specified name projected GST turnover is below $75,000. Specified name GST turnover does not meet the $75,000 registration turnover threshold. Therefore, specified name is not required to be registered under section 23-5. Conclusion As specified name does not meet all the requirements of section 9-5 their supply of their interest in specified address following the proposed partitioning will not be a taxable supply.

Reasons for decision: ● All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless otherwise specified. | ● All terms marked by an *asterisk are defined terms in the GST Act. | The partitioning will result in the following: | ● specified name supplying 50 per cent of her interest in specified address to specified name and | ● specified name supplying 50 per cent of her interest in specified address to specified name.