Private ruling: Requirement to register for GST
Date of advice: 5 October 2018
Published: November 2018
Ruling period: 1 July 2014 to 30 June 2016

Ruling: Q1: Are you required to be registered for GST? | A1: No

Relevant facts and circumstances: You are an individual and are not registered for GST. You purchased a property as a rental property. As it was becoming difficult to rent older houses, you decided to rebuild the property into three units with multiple bedrooms and bathrooms to cater to university students. You engaged a builder to build 2 single story units and a 1 double story unit on the land. The building was completed in 2015. Before engaging the builder, the property was rented as long as possible until demolition works started. You made the decision to sell one of the units based on the following factors: ● Local economic downturn causing rent decreases and increasing vacancies ● Glut of properties being built in the same area causing downward rental pressure ● Change in immigration laws affecting rental demand ● APRA regulation causing interest rate increases for property investors The settlement for the sale was in 2016. You provided evidentiary material in the form of emails, cash flow calculations and media articles to support your contention that your intention was always to derive rental income from the properties and that your financial circumstances and the broader economic conditions were the reason for the decision to sell Unit 3. None of the other units have been sold.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Division 23 | A New Tax System (Goods and Services Tax) Act 1999 Section 188

Reasons for decision: Summary: Section 23-5 of the New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you are required to be registered under this Act if you are carrying on an enterprise and your annual turnover meets the registration turnover threshold. Pursuant to division 188 of the GST Act your turnover will meet the registration turnover threshold where your GST turnover meets the relevant threshold. Section 188-25 of the GST Act provides that in working out your projected GST turnover you can disregard any supply made or likely to be made by way of a transfer of a capital asset of yours. Goods and Services Tax Ruling GSTR 2001/7 Goods and service tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover (GSTR 2001/7) explains the Commissioner’s view on the operation of section 188-25 of the GST Act. In particular, paragraphs 31 and 32 of GSTR 2001/7 state: 31. 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'. 32. '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. 'Capital assets' can also include intangible assets, such as your goodwill. In relation to the property you sold and from the information you have provided, you are conducting a leasing enterprise and the property would constitute a capital asset of that leasing enterprise. Therefore the sale of the property is a supply of a capital asset for the purposes of section 188-25 of the GST Act. . As such, it will be disregarded in working out your GST turnover which means that your GST turnover will not meet the registration turnover threshold based on your circumstances.