Private ruling: Goods and services tax (GST) and residential premises development
Published: May 2013

Ruling: Q1: Will GST be payable on your sale of the apartments that you will sell on completion of construction? | A1: Yes. | Q2: Will GST be payable on your sale of the apartments that you will retain after completion of construction? | A2: GST will be payable on your sale of the apartments you will retain after completion of construction if: · you sell these apartments in the course or furtherance of an enterprise that you carry on · you are registered or required to be registered for GST when you sell them · the sales of these apartments are sales of new residential premises, and · you don't sell these apartments as GST-free supplies of leasing going concerns. | Q3: At what point will you be required to be registered for GST? | A3: You will be required to be registered for GST when your GST turnover reaches $75,000. This could happen as early as 11 months before the month of settlement of sale of the first apartment that you sell. To determine whether your GST turnover has reached $75,000, you need to consider current GST turnover (turnover for the current and past 11 months) as well as projected GST turnover (projected turnover for the current and future 11 months).

Relevant facts and circumstances: The partnership (you) is not registered for GST. The partners jointly own a property located in Australia. You intend to go into a joint venture with a proprietary company, the company, to develop the property. The current value including associated cost thus far of the land is a certain amount of money. There is no mortgage on the land. The company will contribute a certain amount of money to the development of the property. You do not have any other properties in Australia or Australian sourced income. The agreement is that the parties will develop a number of apartments. You will own some of these apartments. The company will own the other apartments. You will sell a number of your apartments on completion of construction. You will retain the other apartments. You do not know what you will do with these apartments. The apartments will each have a value of over $75,000.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1) | A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | 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 9-40 | A New Tax System (Goods and Services Tax) Act 1999 section 11-5 | A New Tax System (Goods and Services Tax) Act 1999 subsection 11-15(1) | A New Tax System (Goods and Services Tax) Act 1999 subsection 11-15(2) | A New Tax System (Goods and Services Tax) Act 1999 section 11-20 | A New Tax System (Goods and Services Tax) Act 1999 subsection 11-30(1) | A New Tax System (Goods and Services Tax) Act 1999 subsection 11-30(3) | A New Tax System (Goods and Services Tax) Act 1999 section 23-5 | A New Tax System (Goods and Services Tax) Act 1999 section 23-10 | A New Tax System (Goods and Services Tax) Act 1999 paragraph 23-15(1)(b) | A New Tax System (Goods and Services Tax) Act 1999 section 38-325 | A New Tax System (Goods and Services Tax) Act 1999 subsection 40-35(1) | A New Tax System (Goods and Services Tax) Act 1999 subsection 40-65(1) | A New Tax System (Goods and Services Tax) Act 1999 subsection 40-65(2) | A New Tax System (Goods and Services Tax) Act 1999 section 40-75 | A New Tax System (Goods and Services Tax) Act 1999 subsection 40-75(1) | A New Tax System (Goods and Services Tax) Act 1999 subsection 40-75(2) | A New Tax System (Goods and Services Tax) Act 1999 subsection 75-20(1) | A New Tax System (Goods and Services Tax) Act 1999 Division 129 | A New Tax System (Goods and Services Tax) Act 1999 subsection 188-10(1) | A New Tax System (Goods and Services Tax) Act 1999 subsection 188-15(1) | A New Tax System (Goods and Services Tax) Act 1999 subsection 188-20(1) | A New Tax System (Goods and Services Tax) Act 1999 paragraph 188-25(a)

Reasons for decision: Summary: GST will be payable on your sale of the apartments that you will sell on completion of construction because: · you will supply them, by way of sale, for consideration · these supplies will be made in the course or furtherance of an enterprise that you carry on · these supplies will be connected with Australia · you will be required to be registered for GST, and · these sales will not be GST-free or input taxed. | Detailed Reasoning - Detailed reasoning: GST is payable by you on your taxable supplies. You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states: 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. (*Denotes a term defined in section 195-1 of the GST Act) In your case, the requirements of paragraphs 9-5(a), 9-5(b) and 9-5(c) of the GST Act will be met in regards to the apartments you will sell on completion because: · you will supply these apartments, by way of sale, for consideration · these supplies will be made in the course or furtherance of a property development and sale enterprise you carry on · these sales will be connected with Australia because the properties will be located in Australia. There are no provisions in the GST Act under which your sales of these apartments will be GST-free. Therefore, what remains to be determined is whether you will be registered or required to be registered for GST when you sell these apartments and whether you will make input taxed sales of these apartments. | Detailed Reasoning - GST registration: Section 23-5 of the GST Act provides that an entity is required to be registered for GST if: (a) it is carrying on an enterprise, and (b) its GST turnover meets the registration turnover threshold of $75,000. You are carrying on an enterprise of property development and sale. Therefore, the requirement of paragraph 23-5(a) of the GST Act is satisfied. Subsection 188-10(1) of the GST Act explains when an entity's GST turnover meets a particular turnover threshold. It states: You have a GST turnover that meets a particular *turnover threshold if: (a) 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 (b) your projected GST turnover is at or above the turnover threshold. Subsection 188-15(1) of the GST Act sets out how to calculate current GST turnover. It provides that 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, other than: (a) supplies that are input taxed; or (b) supplies that are not for consideration (and are not taxable supplies under section 72-5 of the GST Act dealing with supplies to associates); or (c) supplies that are not made in connection with an enterprise that you carry on. Subsection 188-20(1) of the GST Act sets out how to calculate projected GST turnover. It provides that 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, other than: (a) supplies that are input taxed; or (b) supplies that are not for consideration (and are not taxable supplies under section 72-5 of the GST Act dealing with supplies to associates); or (c) supplies that are not made in connection with an enterprise that you carry on. Goods and Services Tax Ruling GSTR 2001/7 provides guidelines on determining whether a taxpayer's GST turnover meets the registration turnover threshold. Paragraphs 16 to 19 and 23 of GSTR 2001/7 state: 16. Whether you have a GST turnover that meets or does not exceed a particular turnover threshold depends on an objective assessment of your projected GST turnover and current GST turnover. An 'objective assessment' is one that a reasonable person could be expected to arrive at having regard to the facts and circumstances which apply to your enterprise at the relevant time. The Commissioner will accept your assessment of these turnovers unless he has reason to believe that your assessment was not reasonable. 17. Under sub-section 188-10(1), you meet a particular threshold if your projected GST turnover is at or above the threshold. You also meet a turnover threshold if your current GST turnover is at or above the turnover threshold and it is not possible to conclude that your projected GST turnover is below the threshold. This will occur if your projected GST turnover is also above the relevant threshold, or if your circumstances are such that it is not possible to calculate a projected GST turnover. In either of these situations, the Commissioner can not be satisfied that your projected GST turnover is below the turnover threshold. 18. Similarly, under sub-section 188-10(2), you have a GST turnover that does not exceed a particular turnover threshold if your projected GST turnover is at or below that threshold. You also do not exceed a turnover threshold if your current GST turnover is at or below the turnover threshold and it is not possible to conclude that your projected GST turnover is above the threshold. This will occur if your projected GST turnover is at or below the relevant threshold or your circumstances are such that it is not possible to calculate a projected GST turnover. In either of these situations, the Commissioner can not be satisfied that your projected GST turnover is above the turnover threshold. 19. Although your current GST turnover and your projected GST turnover may be capable of being determined on every day during a month, there is no requirement for continuous recalculation. However, under the GST Act there are obligations if you meet or exceed a particular threshold and there is an opportunity for you to make certain elections if you do not exceed a particular threshold. Therefore, you should be aware of the relevant thresholds likely to affect you and consider whether your turnover may be sufficiently close to the relevant thresholds to make a review prudent. For example, Entity A conducts an enterprise with a GST turnover of $70,000 and is not registered for GST. Because Entity A is aware that a $5,000 increase in its GST turnover will result in the $75,000 registration turnover threshold being met, it should monitor changes in its turnover. Entity B by contrast, is registered for GST, conducts an enterprise with a GST turnover of $600,000 and accounts on a cash basis. The nearest relevant threshold is the cash accounting turnover threshold ($2,000,000). Entity B may decide to review its current GST turnover and projected GST turnover on an annual basis whilst being aware that a significant change in turnover may require a further review. 23. For the purposes of sections 188-15, 188-20 and 188-25, the expressions, 'likely to make', and 'likely to be made', mean that on the balance of probabilities, it can be predicated that the supply is more likely than not to be made. The value of each apartment will be over $75,000. Hence, we presume you would sell each apartment for over $75,000. A sale of residential premises is input taxed under subsection 40-65(1) of the GST Act. However, in accordance with subsection 40-65(2) of the GST Act a sale of new residential premises other than new residential premises used for residential premises is not input taxed under section 40-65 of the GST Act Section 40-75 of the GST Act defines new residential premises Subsection 40-75(1) of the GST Act states: *Residential premises are new residential premises if they: (a) have not previously been sold as residential premises (other than *commercial residential premise) and have not previously been the subject of a long-term lease; or (b) have been created through *substantial renovations of a building; or (c) have been built, or contain a building that has been build, to replace demolished premises on the same land. Subsection 40-75(2) of the GST Act states: However, the *residential premises are not new residential premises if, for the period of at least 5 years since: (a) if paragraph (1)(a) applies (and neither paragraph (1)(b) nor paragraph (1)(c) applies - the premises first became residential premises; or (b) is paragraph (1)(b) applies - the premises were last *substantially renovated; or (c) if paragraph (1)(c) applies - the premises were last built; the premises have only been used for making supplies that are *inputtaxed because of paragraph 40-35(1)(a). Your sales of a number of the apartments on completion of construction will be sales of residential premises that have not previously been sold as residential premises and have not previously been the subject of a long-term lease. The exception in subsection 40-75(2) of the GST Act will not apply to these apartments because you will not lease out these apartments. Therefore, your sale of these apartments will be sales of new residential premises. These new residential premises will not have been used for residential accommodation before 2 December 1998. Hence, the sales of these apartments will not be input taxed under section 40-65 of the GST Act. There are no other provisions in the GST Act under which your sales of these apartments will be input taxed. Therefore, your current and projected GST turnovers will be over $75,000 when you sell each of the apartments that you will sell on completion of construction. Hence, your GST turnover will be over $75,000 when you sell the apartments that you will sell on completion of construction. Therefore, the requirement of paragraph 23-5(b) of the GST Act will be satisfied. As all of the requirements of section 23-5 of the GST Act will be satisfied, you will be required to be registered for GST (as a partnership) when you sell the apartments that you will sell on completion of construction. Therefore, the requirement of paragraph 9-5(d) of the GST Act will be met when you sell these apartments. As all of the requirements of section 9-5 of the GST Act will be satisfied in relation to your sales of two of the apartments on completion of construction, you will make taxable sales of these apartments. Hence, GST will be payable by you on these sales. | Detailed Reasoning - Question 2: You will satisfy the requirements of paragraphs 9-5(a) and 9-5(c) of the GST Act in relation to your sales of the apartments you will retain after completion of construction. This is because you will supply these properties, by way of sale, for consideration and the sales will be connected with Australia because the properties will be located in Australia. Therefore, GST will be payable on your sale of those apartments if: · you sell these apartments in the course or furtherance of an enterprise that you carry on · you are registered or required to be registered for GST when you sell them · the sales of these apartments are sales of new residential premises, and · you don't sell these apartments as GST-free supplies of leasing going concerns. This is because all of the requirements of section 9-5 of the GST Act would be satisfied under such circumstances. Whether your sales of these apartments will be supplies you make in the course or furtherance of an enterprise you carry on will depend on what your purpose in building them is and what you will do with these apartments before you sell them, for example: · whether you build them for the purpose of sale at a profit · whether you lease them out, and · whether you retain them to use as your and your family's residences and the length of time you hold them for that purpose. Leasing out property on a regular or continuous basis is an enterprise under paragraph 9-20(1)(c) of the GST Act. If you build and retain apartments purely for the purpose of you and your family living in them and not for the purpose of sale at a profit, your sale of these apartments will not be supplies made in the course or furtherance of an enterprise that you carry on. This is because the sales will be mere realisations of private assets. Therefore, under such circumstances, GST will not be payable on your sales of these apartments. In accordance with paragraph 188-25(a) of the GST Act, a sale of a capital/investment asset is excluded from the calculation of projected GST turnover. In accordance with paragraph 32 of GSTR 2001/7, capital assets include tangible assets such as your factory that you retain to produce income. If you retain apartments to lease out, your sales of these apartments will be excluded from the calculation of projected GST turnover because these sales would be sales of capital assets. In accordance with section 38-325 of the GST Act, a sale of a going concern could be GST-free. A sale of a property that was leased out by the vendor can be a supply of a going concern if a lease on the property is transferred from the vendor to the purchaser. Goods and Services Tax Ruling GSTR 2002/5 provides guidelines on supplies of going concerns. GSTR 2002/5 can be found on the Australian Taxation Office website, www.ato.gov.au or an internet search engine. Once you determine what you will do with the apartments you intend to retain, you could apply for a new ruling in regards to those apartments. | Detailed Reasoning - Question 3: You are carrying on an enterprise. Therefore, you will be required to be registered for GST when your GST turnover meets the registration turnover threshold of $75,000. Your current and projected GST turnovers will each be over $75,000 at the start of the month you settle on the sale of an apartment you will sell on completion of construction. Hence, your GST turnover would meet the registration turnover threshold at that time. Therefore, you would be required to be registered for GST at that time. Your projected GST turnover may reach $75,000 before the month of settlement of your sale of the first of the apartments that you sell. Your projected GST turnover will reach $75,000 on a particular date if you forecast on that date (and not on an earlier date) that you are more likely than not to sell an apartment you will sell on completion of construction in that month or in the next 11 months. Hence, your GST turnover would meet the registration turnover threshold on the date of that forecast. Therefore, you would be required to be registered for GST on that date. If, on a particular date, your current GST turnover is at or above $75,000 and it is not possible to conclude that your projected GST turnover is below $75,000, your GST turnover would meet the registration turnover threshold on that date. Therefore, you would be required to be registered for GST on that date. If, on a particular date, your current GST turnover is below $75,000 and it is not possible to conclude that your projected GST turnover is at or above $75,000, your GST turnover would not meet the registration turnover threshold. Therefore, you would not be required to be registered for GST on that date. GST registrations can be backdated. | Detailed Reasoning - Additional information: In accordance with section 11-20 of the GST Act, you are entitled to input tax credits on your creditable acquisitions. You will be entitled to input tax credits on your creditable acquisitions of development related acquisitions. You make a creditable acquisition where you satisfy the requirements of section 11-5 of the GST Act, which states: You make a creditable acquisition if: (a) you acquire anything solely or partly for a *creditable purpose; and (b) the supply of the thing to you is a *taxable supply; and (c) you provide, or are liable to provide, *consideration for the supply; and (d) you are *registered or *required to be registered. Subsection 11-15(1) of the GST Act states: You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your *enterprise. Subsection 11-15(2) of the GST Act states: However, you do not acquire the thing for a creditable purpose to the extent that: (a) the acquisition relates to making supplies that would be *input taxed; or (b) the acquisition is of a private or domestic nature. Subsection 11-30(1) of the GST Act provides that an acquisition that you make is partly creditable if it is a creditable acquisition to which one or another of the following apply: (a) you make the acquisition only partly for a creditable purpose; (b) you provide or are liable to provide only part of the consideration for the acquisition. In accordance with subsection 11-30(3) of the GST Act, the amount of the input tax credit on an acquisition that you make that is partly creditable is as follows: Full input credit X Extent of creditable purpose X Extent of consideration Full input tax credit is what would have been the amount of the input tax credit for the acquisition if it you had made it solely for a creditable purpose and you had provided or had been liable to provide all of the consideration for the acquisition. You will acquire development relating acquisitions (for example, building materials or construction companies' services) for a creditable purpose to the extent that that you acquire them to use in the development of the apartments that you will sell on completion of construction. If you use the other apartments for private or domestic purposes, you will not acquire development acquisitions for a creditable purpose to the extent that these acquisitions are apportionable to those other apartments. Therefore, to that extent, you will not acquire the acquisitions for a creditable purpose. If you built these apartments for the purpose of leasing, you will acquire the development related acquisitions for the purpose of making input taxed supplies to the extent that these acquisitions relate to those apartments. This is because leasing out residential premises is an input taxed supply under section 40-35 of the GST Act. Therefore, to the extent that the development related acquisitions are for the purpose of developing those apartments under such circumstances, you would not acquire the acquisitions for a creditable purpose. Where you make a creditable acquisition that is only partly creditable, you will need to apportion the acquisition between the apartments you intend to sell on completion and the other apartments (if you use these apartments for private or domestic purposes or to lease out and you do not build these apartments for the purpose of sale). You would only be entitled to claim an input tax credit for a portion of the GST. That portion will be equal to the extent of creditable purpose (presuming that you have provided the full consideration for the acquisition). Goods and Services Tax Ruling GSTR 2006/4 provides guidelines for determining the extent of creditable purpose of an acquisition. If the partners originally purchased the property to live on, but decided to develop it at some later time, we would not consider that you (the partnership) acquired the property at that time, because the partners would not have purchased the property in the capacity of partners in the partnership. Therefore, under such circumstances, you would not be entitled to an input tax credit on the partners' purchase of the property. Under such circumstances, the partners would have supplied, or will supply, their interests in the property to you. These supplies by the partners to you would not be made in the course or furtherance of enterprises that they carry on under such circumstances. Therefore, these supplies would not be taxable supplies. Hence, you would not be entitled to input tax credits on your acquisitions of these interests from the partners. If the sale of the development site to you was a taxable supply on which the margin scheme was used, you will not be entitled to an input tax credit on your purchase of the development site (in accordance with subsection 75-20(1) of the GST Act). You would need to register for GST in order to claim input tax credits. In accordance with section 23-10 of the GST Act, you may register for GST on a particular date if you are carrying on an enterprise on that date even if you are not required to be registered for GST on that date.