Private ruling: GST and sale of commercial residential premises
Date of advice: 20 January 2016
Published: March 2016

Ruling: Q1: Will your sale of the property be subject to GST? | A1: No, as you are not required to be registered for GST, your sale of the property will not be subject to GST.

Relevant facts and circumstances: You are not registered for GST. You own property at a specified location (Property). The Property operates as a commercial residential property (Hotel). You currently generate rent in excess of $X00,000 from the Property. Since the commencement of GST, more than X% of the residents have been long-term tenants (i.e. they reside at the premises continuously for more than 28 days). You have made a choice as provided in section 87-25 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) not to apply the provisions in Division 87 to your supplies of accommodation. You also generate business income from supplying accommodation for periods of less than 28 days. However, supplies of this type are minimal and the GST turnover from these supplies does not meet the registration turnover threshold of $75,000. You do not derive any other business income other than income from supplying accommodation in the Property. You are considering selling the Property and ceasing to carry on your enterprise.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | Section 9-40 | Section 23-5 | Paragraph 40-35(1)(b) | 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 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: • you make the supply for consideration; and • the supply is made in the course or furtherance of an enterprise that you carry on; and • the supply is connected with the indirect tax zone (Australia); and • 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. As you are not currently registered, the issue in this case is whether you are required to be registered. Section 23-5 provides that you are required to register for GST if you carry on an enterprise and your GST turnover meets the registration turnover threshold (currently $75,000). In this case, you carry on an enterprise of supplying accommodation. The next question to consider is whether your turnover meets the GST registration turnover threshold. Subsection 188-10(1) of the GST Act provides that your GST turnover will meet the registration turnover threshold if: (a) your current GST turnover is $75,000 or more, and the Commissioner is not satisfied that your projected annual turnover is below $75,000, or (b) your projected GST turnover is $75,000 or more. 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 (section 188-15). 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 (section 188-20). Supplies that are input taxed are excluded in the calculation of both your current and projected GST turnover. | Detailed Reasoning - Supplies of long-term accommodation.: In this case: • you make supplies of commercial accommodation (i.e. the right to occupy all or part of the Property); • the commercial accommodation is provided in commercial residential premises; and • the accommodation is provided to individuals where more than 70% of residents have resided for continuous periods of more than 28 nights. You have determined that Division 87 would apply to your supplies. However, you have made an election or choice not to apply the provisions in Division 87 to your supplies of the accommodation as provided for in section 87-25. Paragraph 40-35(1)(b) provides that a supply of premises by way of lease, hire or licence is input taxed if the supply is of commercial accommodation and Division 87 would apply to the supply but for a choice made by the supplier under section 87-25. As such, your supplies of accommodation are input taxed pursuant to paragraph 40-35(1)(b) and excluded in the calculation of both your current and projected GST turnover. | Detailed Reasoning - Supplies of accommodation for periods of less than 28 days: Your supplies of accommodation for periods of less than 28 days are taken into account in calculating your GST turnover for registration purposes. Your supplies of this nature are minimal and the GST turnover from these supplies does not meet the registration turnover threshold of $75,000. | Detailed Reasoning - Supply of the Property.: Section 188-25 modifies the calculation of your projected annual turnover by excluding certain supplies including 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 (GSTR 2001/7) discusses at paragraph 31 that generally, the term 'capital assets' refers to those assets that make up 'the profit yielding subject' of an enterprise. Capital assets 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'. Paragraph 32 of GSTR 2001/7 continues stating 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 and can also include intangible assets, such as your goodwill. In this case we consider the Property to be a capital asset and as such it is not taken into account in the calculation of your projected GST turnover. Accordingly, your projected GST turnover is less than $75,000. As both your current GST turnover and your projected GST turnover are less than the GST registration turnover threshold, you are not required to be registered. | Detailed Reasoning - Conclusion: Your supplies of long-term accommodation and the sale of the Property are excluded from calculating your GST turnover for registration purposes. Your other business income, generated from supplies of accommodation for periods of less than 28 days, are minimal, with turnover from these supplies not meeting the GST registration threshold. As such, you are not required to register for GST. As you are neither registered, nor required to be registered for GST, your sale of the Property will not constitute a taxable supply and GST will not be applicable to your sale.