Private ruling: GST and property
Date of advice: 26 March 2018
Published: June 2018

Ruling: Q1: Is your supply of specified address a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No, your supply of specified address is not a taxable supply under section 9-5 of the GST Act.

Relevant facts and circumstances: You (specified entity) are not registered for GST. In specified year you purchased the property at specified address (the Property). The Property was acquired subject to a lease for the whole of the Property to specified persons (the tenants). The Property is a specified number of hectares. The Property includes a dwelling and is currently zoned Part Urban Growth Zone and Part Farming Zone. You bought the Property as an investment with a lease on it. There were no immediate plans to do anything with the Property other than leasing it out. You did not intend to dispose of the Property quickly. The tenants have remained in occupation of the Property since your acquisition of the Property. On specified date you renewed and re-entered the residential lease over the whole of the Property with them. The 12 month lease is for a monthly rental of specified amount. You dealt with the tenants on an arms-length basis. The tenants utilise the whole of the Property under the tenancy agreement. You may or may not renew the lease after its expiry on specified date. If the lease is renewed after its expiry on specified date then the value of supplies under the lease agreement for Division 188 purposes will be below $75,000. You own no other assets. You simply held the Property. At all times your sole activities involved holding the Property and acting as lessor under the tenancy agreement. No work has been undertaken to develop or improve the Property. Your sole income is the rental income from the tenancy agreement. You now wish to sell the Property. You provided us with a copy of a Contract of Sale of Real Estate that you are proposing to enter into to sell the Property. This document reflects the form that the sale will take place, although its final terms and conditions will be subject to negotiation between the parties. You expect the sale of the Property to settle on specified date. You do not carry on any other enterprise. You do not intend to carry on any other enterprise.

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 paragraph 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 section 23-5 | A New Tax System (Goods and Services Tax) Act 1999 section 40-35 | A New Tax System (Goods and Services Tax) Act 1999 subsection 40-35(1) | A New Tax System (Goods and Services Tax) Act 1999 section 40-65 | A New Tax System (Goods and Services Tax) Act 1999 subsection 40-65(1) | A New Tax System (Goods and Services Tax) Act 1999 section 72-5 | A New Tax System (Goods and Services Tax) Act 1999 subsection 188-10(1) | A New Tax System (Goods and Services Tax) Act 1999 section 188-25

Reasons for decision: Summary: n All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless otherwise specified. n All terms marked by an *asterisk are defined terms in the GST Act. Section 9-5 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 the indirect tax zone; 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. For the supply of your Property to be a taxable supply, all of the requirements in section 9-5 must be satisfied. One of the requirements for a taxable supply is that you are registered or required to be registered for GST. GST registration 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, which is currently $75,000 for entities other than non-profit entities. Both of these criteria need to be met for you to be required to be registered for GST. Relevantly we will consider whether your GST turnover meets the registration turnover threshold. You will not be required to be registered if you do not meet the registration turnover threshold. Registration turnover threshold Subsection 188-10(1) provides that you have a GST turnover that meets the registration turnover threshold if: ● your current GST turnover is at or above the registration turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the registration turnover threshold, or ● your projected GST turnover is at or above the registration turnover threshold. It is necessary to determine whether your projected GST turnover meets the threshold. You are required to be registered for GST if your projected GST turnover is at or above $75,000. Your projected GST turnover is the sum of the values of all supplies made in a particular month plus the next 11 months. Relevantly supplies that are input taxed are disregarded when working out your projected GST turnover. Input taxed supplies of house and curtilage (part of your property) Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5), provides guidance on what is considered to be residential premises to be used predominantly for residential accommodation for the purposes of sections 40-35 and 40-65. Paragraph 46 of GSTR 2012/5 explains that, in considering land supplied with a building, the extent to which the land forms part of residential premises to be used predominantly for residential accommodation is a question of fact and degree. The most relevant factor is the extent the land is to be enjoyed in conjunction with the relevant building. We consider that only a portion of your land is to be enjoyed in conjunction with the relevant building. The balance of the land being vacant land is not enjoyed in conjunction with the relevant building. Subsection 40-35(1) provides that a supply of premises that is by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is input taxed if: (a) the supply is of *residential premises (other than a supply of *commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises); or (b) the supply is of *commercial accommodation and Division 87 (which is about long-term accommodation in commercial premises) would apply to the supply but for a choice made by the supplier under section 87-25. We consider that the supply of the part of your Property, comprising the house and curtilage, by way of lease, hire or licence is input taxed under subsection 40-35(1). Therefore, any consideration for the lease of the house and curtilage is disregarded when working out your projected GST turnover. In addition, section 40-65(1) provides that: 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 (regardless of the term of occupation). We consider that the sale of part of your Property, comprising the house and curtilage, is input taxed under subsection 40-65(1). Therefore, the relevant portion of the sale consideration in respect to the house and curtilage is also disregarded when working out your projected GST turnover. Supply of vacant land (part of your Property) However, the supply of the rest of your Property, comprising vacant land, by way of lease is not input taxed. Any consideration for the supply of vacant land by way of lease is included in your projected GST turnover. However, the value of the supply of vacant land by way of lease, for Division 188 purposes, will be below $75,000. In addition, we need to consider whether the sale of the vacant land is included in the projected GST turnover. Section 188-25 provides that when calculating your projected GST turnover, you do not include any supplies made, or likely to be made by you: ● by way of transfer of ownership of a capital asset, or ● solely as a consequence of ceasing an enterprise or substantially and permanently reducing the size or scale of your enterprise. Capital asset The meaning of 'capital asset' is discussed in paragraphs 31 to 36 of 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 . The GST Act does not define the term “capital asset”. However, GSTR 2001/7 explains that 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. They 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. 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 asset even if such a disposal is an occasional or one-off transaction. Therefore, the character of an asset must be determined at the time of expected supply. In this case, you held the Property in order to derive lease income from letting the Property, not by deriving income from the disposal of the Property. The vacant land is therefore a capital asset used in that leasing enterprise. It follows then, that the disposal of the vacant land will be excluded from the calculation of your projected GST turnover. Your projected GST turnover is below $75,000. Your GST turnover does not meet the $75,000 registration turnover threshold. Therefore, you are not required to be registered under section 23-5. Conclusion As you do not meet all the requirements of section 9-5 your supply of the Property will not be a taxable supply.