Private ruling: GST and input tax credits
Date of advice: 22 June 2015
Published: June 2015

Ruling: Q1: Is the sale of your property located in Australia, a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No

Relevant facts and circumstances: You acquired land to build a house. The property address is in Australia. You intended on building the house to lease to unrelated parties as residential accommodation and to keep it as a long term rental investment. Prior to entering into any leasing of the property, an offer to purchase the completed house was made. No input tax credits have been claimed on the property. Your turnover consists of interest and dividends from share portfolios. You are not registered for GST. Assumption Your turnover is under $75k.

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 9-20 | A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-20(1)(c) | A New Tax System (Goods and Services Tax) Act 1999 Section 23-5 | A New Tax System (Goods and Services Tax) Act 1999 Subsection 23-5(a) | A New Tax System (Goods and Services Tax) Act 1999 Subsection 23-5(b) | A New Tax System (Goods and Services Tax) Act 1999 Section 188-10 | A New Tax System (Goods and Services Tax) Act 1999 Section 188-25

Reasons for decision: Summary: In this ruling, please note: unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) • all terms marked by an *asterisk are defined terms in the GST Act • all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website ato.gov.au You must pay the GST payable on any taxable supply that you make. Section 9-5 provides that you make a taxable supply if: (a) you make the supply for *consideration; and (a) the supply is made in the course or furtherance of an *enterprise that you *carry on; and (b) the supply is *connected with Australia, and (c) you are *registered for GST, or *required to be registered. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. In your case, when you sell the property in question, you will make a supply of property in Australia for consideration satisfying paragraphs 9-5(a) and (c). Further, the supply will not be GST free. However, it is necessary to determine if: • the supply will be input taxed • the supply of the property will be made in the course or furtherance of an enterprise that you are carrying on and if so, • if you are required to be registered for GST. | Detailed Reasoning - Input Taxed: Section 40-65 of the GST Act provides a sale of real property is input taxed but only to the extent that the property is residential premises to be used predominantly for residential accommodation. However, subsection 40-65(2) provides the sale is not input taxed to the extent that the residential premises are new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998. Section 40-75 of the GST Act relevantly provides residential premises are new residential premises if they have not been previously sold as residential premises, and have not previously been subject of a long term lease, as in your case. As such, the sale of the property is not an input taxed supply but a supply of new residential premises. | Detailed Reasoning - Enterprise: Paragraph 9-20(1)(c) provides that an enterprise includes 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. Whether or not an activity or a series of activities amounts to carrying on an enterprise is a question of fact having regard to all of the circumstances of the case. Leasing a property is considered to be the carrying on of an enterprise where it is done on a regular or continuous basis involving a reasonable expectation of profit or gain. In your case you acquired land and built a house (the Property) that you intended to lease however you did not commence this leasing enterprise, Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) considers the meaning of carrying on an enterprise. Goods and Services Tax Determination 2006/6 provides that the discussion in MT 2006/1 equally applies to the term 'enterprise' as used in the GST Act and can be relied upon for GST purposes. Paragraph 121 and 122 of MT 2006/1 provide that activities done by an entity that are part of a process of beginning or bringing in to existence an enterprise are activities in carrying on an enterprise. Therefore your activities of buying land and constructing a house in preparation for leasing were activities conducted in the course of your leasing enterprise activity. The house when constructed was the capital asset to be used in your leasing enterprise. Therefore, we consider that your preparatory activities for your leasing enterprise constitute 'carrying on an enterprise' for the purposes of the GST Act. Accordingly, you satisfy paragraph 9-5(b). | Detailed Reasoning - Registration: Section 23-5 of the GST Act states: 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. In your case we consider your activities amounted to an enterprise and therefore we need to consider whether your GST turnover meets the registration turnover threshold. Section 188-10 of the GST Act is relevant for working out whether your GST turnover meets, or does not exceed, a turnover threshold. Whether you have a GST turnover that meets or does exceed a particular turnover threshold depends on an objective assessment of your projected GST turnover and your current GST turnover. In considering whether supplies are to be included in your current GST turnover and your projected turnover you exclude input taxed supplies. Further, section 188-25 of the GST Act provides that your projected GST turnover does not include supplies made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours. In selling the Property you will dispose of a capital asset in addition to ceasing to carry on your enterprise. As such you can disregard the monies received from the sale of the Property. As such your current and projected GST turnover would be below the registration threshold. Therefore you are not required to be registered for GST. | Detailed Reasoning - Conclusion: As all the requirements of section 9-5 are not satisfied, you are not making a taxable supply when you sell the Property. As such, there will be no GST payable on the sale of the Property.