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

Ruling: Q1: Are you making a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 when you sell property located at a specified location? | A1: No

Relevant facts and circumstances: You are not currently registered for GST. In xxxx you purchased xx acres of land located at a specified location (the Property) and constructed your principal place of residence. You operated a small scale primary production business on the Property registering for GST effective from 1 July 20XX. You ceased carrying on your primary production enterprise in xxxx and your GST registration was cancelled. You still reside on the Property as your principal place of residence. You currently lease approximately 30% of the Property to an unrelated party for use in their primary production business. Turnover from leasing the land is less than $XXX annually. You are retired and do not carry on any other enterprise. You are currently negotiating to sell the Property to a property developer. The sale contract will be interdependent with and subject to the simultaneous completion of ‘Related Contracts’ being contracts which the purchaser (property developer) will enter into on a similar basis with a number of neighbouring property owners. The purchaser’s intention is to develop the land for large scale residential and industrial purposes.

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

Reasons for decision: Summary: 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 (Individual A and Individual B) are making a supply of the Property in the course or furtherance of an enterprise that you carry on and if you are required to be registered for GST. Section 9-20 provides that 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. In this case, you acquired the Property in xxxx and currently lease approximately 30% of the Property to an unrelated entity for the purpose of use in their primary production business. The remainder of the Property is used as your primary place of residence. We consider that you are a tax law partnership for GST purposes as you are an association of persons in receipt of ordinary income (rent) jointly in relation to a leasing enterprise you are carrying on. You will also be in joint receipt of statutory income on the sale of the Property. As the partnership is not currently registered for GST, it is necessary to consider whether you are required to be registered for GST. Section 195-1 states that the phrase ‘carrying on’ in the context of an enterprise includes ‘doing anything in the course of the commencement or termination of the enterprise’. 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 188-25(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. 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. 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 be disregarded when calculating your projected GST turnover. Your current GST turnover, being the turnover generated from leasing 30% of the Property does not meet the GST registration turnover threshold. Furthermore, as the proceeds from the sale of your Property are disregarded when calculating your projected GST turnover, your projected GST turnover will also be below the GST registration turnover threshold. As both your current and projected GST turnover do not meet the GST registration turnover threshold, you are not required to be registered for GST under section 23-5. | Detailed Reasoning - Conclusion: GST is payable on any taxable supplies that you make. One of the requirements of a taxable supply include that you are registered or required to be registered for GST. In this case, you are neither registered nor required to be registered for GST and as such will not be making a taxable supply when you sell the Property.