Private ruling: GST and property
Date of advice: 1 April 2020
Published: May 2020
Ruling period: 1 January 2020 to 30 June 2021
Date scheme commenced: 1 March 2016

Ruling: Q1: Are you liable for goods and services tax, pursuant to section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999, when you transfer your 50% interest in a duplex? | A1: No

Relevant facts and circumstances: You were registered for GST for the period dd/mm/yyyy to dd/mm/yyyy. You are not registered for GST. Your spouse is registered for GST with an effective start date of dd/mm/yyyy. You and your spouse together are not registered for GST. In mm/yyyy you and your spouse purchased property as joint tenants. The existing dwelling was demolished. In 2018 the property was subdivided into two lots and two residential dwellings known as XA and XB were constructed. You and your spouse intend to hold XA for investment purposes to generate rental income for the foreseeable future. There was no profit making intention in the subdivision and build of XA and XB. XB is used as the principal place of residence for you and your spouse. You intend to transfer your 50% interest in XB to your spouse.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | Paragraphs 9-5(a) - (d) | Section 9-40 | Subsection 184-1(1) | Section 195-1 | Income Tax Assessment Act 1997 Subsection 995-1(1)

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 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 for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. You and your spouse have undertaken a series of activities being: · the acquisition of a property; · the demolition of an existing dwelling; · the construction of two new residential dwellings; · the leasing of one of the new residential premises (XA); and · the occupation of the other new residential premises (XB) as your principal place of residence. The issue in this case is whether the intended supply of your 50% interest in XB to your spouse is a taxable supply. The first issue to consider is identifying the entity that is making the supply of the interest in XB. Subsection 184-1(1) provides that an 'entity' includes the following: (a) an individual (b) ... (c) ... (d) ... (e) a partnership (f) ... (g) ... (h) ... The term 'partnership' is defined in section 195-1 by reference to the definition of 'partnership' in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997). That definition states: partnership means: (a) an association of persons (other than a company or a limited partnership) carrying on business as partners or in receipt of ordinary income or statutory income jointly; or (b) a limited partnership. The definition above includes as a partnership an association of persons (other than a company or a limited partnership) 'in receipt of ordinary income or statutory income jointly'. We refer to this type of partnership as a tax law partnership. | Detailed Reasoning - Tax law partnerships: Goods and Services Ruling GSTR 2004/6 Goods and services tax: tax law partnerships and co-owners of property (GSTR 2004/6)discuss how the GST legislation applies to transactions involving tax law partnerships. In this case, the activities undertaken by you and your spouse as a tax law partnership include: · the acquisition of the original land; · the demolition of the existing dwelling; · the construction XA; and · the subsequent rental of XA. You and your spouse are an association of persons in joint receipt of the rental income (ordinary income) generated from XA. We consider the activities of the tax law partnership include those activities limited to the construction and rental of XA. We do not consider the activities associated with the construction of XB and use of XB as the principal place of residence of you and your spouse to be those of a partnership. Your spouse and you are not carrying on a business in respect to XB. Neither are both of you in receipt of ordinary income or statutory income jointly (tax law partnership) regarding XB. Your spouse and you have constructed and used XB as co-owners. Consequently, we consider the transfer of your 50% interest in XB to your spouse to be a supply by you as an individual co-owner. The next issue to consider is whether your supply of your 50% interest in XB is a taxable supply as defined above. Paragraph 9-5(b) requires that a taxable supply be made in the course or furtherance of an enterprise that 'you' carry on. Following on from the discussion above, the word 'you' is a reference to you as an individual co-owner. It is not a reference to you, as a tax law partnership, carrying on a leasing enterprise in relation to XA. Your supply of your 50% interest in XB is not a supply done in the course or furtherance of an enterprise that you carry on. Your supply is a transaction of a private or domestic nature. Your supply does not satisfy paragraph 9-5(b). Therefore, your supply does not satisfy the section 9-5 definition of a taxable supply. You are not making a taxable supply when you transfer your 50% interest in XB to your spouse.