Private ruling: Goods and services tax (GST) and sale of business property
Date of advice: 14 August 2015
Published: August 2015
Ruling period: 01/07/2015-30/09/2015

Ruling: Q1: Will the sale of your business property containing building premises be subject to GST? | A1: No, the sale of your building will not be subject to GST.

Relevant facts and circumstances: You are a company and not registered for GST. You lease two commercial properties comprising buildings to another entity. The combined income from these leases is below $75,000 per annum. You intend to sell one of the buildings as a vacant building free of any lease for more than $75,000.

Relevant legislative provisions: Subsection 7-1(1) of the A New Tax System (Goods and Services Tax) Act 1999 | Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 | Paragraph 184-1(b) of the A New Tax System (Goods and Services Tax) Act 1999 Section 188-10 of the A New Tax System (Goods and Services Tax) Act 1999 | Section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 | Section 188-25 of the A New Tax System (Goods and Services Tax) Act 1999

Reasons for decision: Summary: Subsection 7-1(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that GST is payable on taxable supplies. Section 9-5 of the GST Act 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 Australia; 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. The term 'you' applies to 'entities' generally. A company is an entity for GST purposes under paragraph 184-1(b) of the GST Act. Your supply of the building satisfies paragraphs (a) and (c) of section 9-5 of the GST Act as you will sell the building for a price of more than $75,000; and the supply is connected with Australia since the building is located in Australia. With respect to paragraph 9-5(b) of the GST Act on whether the supply is made in the course or furtherance of an enterprise that you carry on, section 9-20 of the GST Act provides the definition of enterprise for GST purposes which 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. You are carrying on an enterprise of leasing commercial properties. The supply of the building is made in the course of your leasing enterprise, hence paragraph 9-5(b) of the GST Act is satisfied. You are not registered for GST. The combined payment received from the lease of the two buildings is under $75,000 per year. We need to consider whether you will be required to be registered for GST due to the sale of the building (paragraph 9-5(d) of the GST Act). Section 23-5 of the GST Act provides that you are required to be registered if: a) you are carrying on an enterprise; and b) your GST turnover meets the registration turnover threshold. Since you are carrying on an enterprise of leasing, you will be required to register for GST if your GST turnover meets the registration turnover threshold which currently for you is $75,000 per annum. Section 188-10 of the GST Act provides that you have a GST turnover that meets a particular turnover threshold if: • your current GST turnover is at or above the turnover threshold and the Commissioner is not satisfied that your projected GST turnover is below the turnover threshold, or • your projected GST turnover is at or above the turnover threshold. Your current GST turnover is the value of all supplies you have made or are likely to make in the current month plus the previous 11 months. Your projected GST turnover is the value of all supplies you have made and are likely to make in the current month and the next 11 months. Note that the value of a supply is equal to its GST exclusive price. You exclude the value of input taxed supplies, supplies that are not for consideration and supplies that are not made in connection with an enterprise that you carry on, from the calculation of your current and projected GST turnover. You are selling the building for more than $75,000. Your GST turnover will meet the registration turnover threshold in the month in which the sale takes place unless the Commissioner is satisfied that your projected GST turnover is below the GST registration turnover threshold. There are special rules relating to the sale of capital assets and projected GST turnover. Section 188-25 of the GST Act provides that when working out your projected GST turnover you disregard: • any supply made, or likely to be made by you by way of transfer of ownership of a capital asset, and • any supply made, or likely to be made by you solely as a consequence of either ceasing to carry on an enterprise or substantially and permanently reducing the size or scale of an enterprise. Paragraphs 31 to 35 of Goods and Services Tax Ruling (GSTR) 2001/7 discuss the meaning of capital assets. The GST Act does not define the term capital assets. 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 and may be described as the business entity, structure or organisation set up or established for the earning of profits. A revenue asset on the other hand, is an asset whose realisation is inherent in, or incidental to, the carrying on of a business. That is, 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 nature even if such a disposal is an occasional or one-off transaction. Paragraph 32 of GSTR 2001/7 provides that capital assets are assets that are retained by you to produce income. However, assets such as stock, which are acquired and used for resale in the course of carrying on an enterprise, are revenue assets. The building for sale is a capital asset of the leasing enterprise carried on by you. Accordingly when you sell the building, the expected proceeds from the sale would be disregarded under section 188-25 when calculating your projected GST turnover and your projected GST turnover would not meet the GST registration turnover threshold. Therefore, you will not be required to be registered for GST and paragraph 9-5(d) of the GST Act will not be satisfied. Since not all the requirements of section 9-5 of the GST Act will be met, the sale of the building that was used for your leasing enterprise will not be a taxable supply. Consequently, GST will not be payable on the sale of this building. | Detailed Reasoning - GST-free supply of a going concern: You also asked if the sale of the building would be a supply of a going concern and therefore GST-free. Subsection 38-325(2) of the GST Act provides that the supply of a going concern must be made under an arrangement under which: • the supplier supplies to the recipient all of the things that are necessary for the continued operation of an enterprise, and • the supplier carries on, or will carry on, the enterprise until the day of the supply (whether or not as a part of a larger enterprise carried on by the supplier). Goods and Services Tax Ruling GSTR 2002/5 discusses a supply of a going concern for the purposes of section 38-325 of the GST Act and when the supply of a going concern is GST-free. For the continued operation of the enterprise of leasing commercial premises, it is necessary to supply the property together with the existing lease agreements. As the building will be sold empty and not subject to any lease, this is not the case in your situation and its sale will not be a supply of a going concern.