Private ruling: GST and sale of property
Date of advice: 31 August 2018
Published: October 2018

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

Relevant facts and circumstances: You are not registered for the Good and Services Tax (GST). You acquired a 50% interest in an investment property via a family trust located at a specified location (the Property) in xx month xxxx year. In year xxxx you acquired the remaining 50% interest in the Property. The Property is approximately x.xxha which contains a four bedroom, three bathroom house with kitchen, bathroom and living facilities. There are no other buildings on the Property. The Property has been leased since you acquired the Property. The terms of the lease provide that the Property is to be used for residential purposes only. As part of the Property, a lane is also used for residential purposes only. You have not conducted any renovations to the Property since it was acquired.

Relevant legislative provisions: A New Tax System (Goods and Services Tax Act) 1999 Section 9-5 | Section 9-40 | Section 23-5 | Section 40-35 | Subsection 40-35(2) | Section 40-65 | Section 40-70 | Division 188 | Section 188-10 | Section 188-25 | Paragraph 188-15(1)(a) | Paragraph 188-20(1)(a) | Paragraph 188-25(a) | Section 195-1

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 www.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; 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 for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. Of relevance is whether you are firstly, carrying on an enterprise and whether the sale of the Property is in the course or furtherance of an enterprise that you carry on. If so, we will need to determine whether you are required to be registered for GST which will include a discussion of whether your supply of the Property, either by way of lease or sale, is an input taxed supply and if so, to what extent it is input taxed. | Detailed Reasoning - Enterprise: In this case, you acquired a 50% interest of the Property in year xxxx, acquiring the remaining 50% interest in xx month year xxxx. The Property has been leased since xx month year xxxx. Section 9-20 provides that for GST purposes, the term ‘enterprise’ includes, among other things, 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. The leasing of the Property will constitute an ‘enterprise’ with the sale of the Property being regarded as being made in the course of furtherance of your enterprise. | Detailed Reasoning - 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 (currently $75,000). As discussed above, it is considered that the rental of the Property constitutes an ‘enterprise’ for GST purposes. The meaning of GST turnover is contained in Division 188. Section 188-10 provides that your GST turnover will meet the registration turnover threshold if: a) your current GST turnover is at or above the threshold ($75,000) and the Commissioner is not satisfied that your projected GST turnover is below $75,000, or b) your projected GST turnover is at or above $75,000. Your ‘current GST turnover’ is the sum of your turnover for the current month and the previous 11 months. Your ‘projected GST turnover’ is the sum of your turnover for the current month and the next 11 months. Paragraph 188-15(1)(a) and paragraph 188-20(1)(a) provide that input taxed supplies are not taken into account when calculating your current and projected turnovers respectively. Section 40-35 provides that a supply of residential premises by way of lease, hire or licence (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) is input taxed. Under subsection 40-35(2), the supply is input taxed only to the extent the premises are to be used predominately for residential accommodation (regardless of the term of occupation). The definition of ‘residential premises’ in section 195-1 refers to land or a building that is occupied as a residence or for residential accommodation, or is intended to be occupied, and is capable of being occupied as a residence or for residential accommodation (regardless of the term of occupation or intended occupation). The Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) outlines the characteristics of residential premises. Paragraph 9 of GSTR 2012/5 explains that the requirement in sections 40-35, 40-65 and 40-70 that premises be ‘residential premises to be used predominately for residential accommodation’ is to be interpreted as a single test that looks to the physical characteristics of the property to determine the premises’ suitability and capability for residential accommodation. Further, paragraph 15 of GSTR 2012/5 states that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities. The Property is approximately x.xxha in area and contains a four bedroom, three bathroom house with kitchen, bathroom and living facilities. There are no other buildings on the Property. In regard to the size of the land being sold, paragraph 46 of GSTR 2012/5 states: 46. There is no specific restriction, in the definition of residential premises, on the area of land that can be included with a building. The extent to which land forms part of residential premises to be used predominantly for residential accommodation is a question of fact and degree in each case. A relevant factor in determining this is the extent to which the physical characteristics of the land and building as a whole indicate that the land is to be enjoyed in conjunction with the residential building. The use of the land is not a determining factor in deciding if the land forms part of the residential premises. In this case we consider that the land does form part of the premises being sold. Therefore, as a whole, we consider the Property satisfies the definition of ‘residential premises’ pursuant to section 195-1. As such, your supplies of leasing the Property are not taken into account when calculating your current and projected turnovers. Section 40-65 provides that the sale of real property is input taxed to the extent the property is residential premises to be used predominately for residential accommodation. However, the sale will not be input taxed to the extent the premises are ‘commercial residential premises’ or ‘new residential premises’ (other than those used for residential accommodation before 2 December 1998). From the information you have provided, we consider the Property to be residential premises to be used predominately for residential accommodation. Furthermore, the Property is not considered to be ‘commercial residential premises’ or ‘new residential premises’. Your supply of the Property by way of sale will be input taxed and also not taken into account when calculating your current and projected turnovers. In addition, paragraph 188-25(a) provides that when calculating your projected turnover you disregard any supply made, or likely to be made, by way of transfer of ownership of a capital asset of yours. As such, we need to consider whether your sale of the Property is excluded from the calculation of your projected GST turnover. The 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 what is regarded as a ‘capital asset’ at paragraphs 31 to 36. Whilst not specifically defined for GST purposes, the term ‘capital assets’ generally refers to those assets that make up the profit yielding subject of an enterprise and 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. From the information you have provided, we consider the Property to be a capital asset. Given the facts in this case we consider the sale of the Property constitutes the transfer of a capital asset for the purposes of section 188-25 and will therefore also be disregarded when calculating your projected GST turnover. Given the above, you are not required to be registered for GST. | Detailed Reasoning - Conclusion: The supply of the Property is not a taxable supply as defined by section 9-5. As such you are not liable for GST pursuant to section 9-40.