Private ruling: GST and registration
Date of advice: 7 August 2019
Published: October 2019
Ruling period: May 2015 to 30 June 2020
Date scheme commenced: May 2015

Ruling: Q1: Are you required to be registered for GST pursuant to section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes | Q2: Are you liable for GST pursuant to section 9-40 of the GST Act when you sell vacant land situated at a specified location? | A2: Yes

Relevant facts and circumstances: You are not registered for GST. You are a complying superannuation fund. In xxxx you acquired land situated at a specified location. Your intention was to subdivide the land into two separate lots and constructing residential dwellings on each lot for the purpose of renting to unrelated parties. You subsequently made a decision in xxxx to sell one of the undeveloped lots in order to finance the construction of the residential dwelling on the second lot for the purpose of financing your rental enterprise. Titles for the two lots were registered on xx/xx/xxxx being Lot 1 and Lot 2. You are currently considering listing one of the lots for sale as vacant land. The sale price of the vacant lot is expected to be between $xxx,000 to $xxx,000

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 | Paragraph 23-5(a) | Subsection 188-10(1) | Section 188-15 | Section 188-20 | Section 188-25

Reasons for decision: Summary: Note: In this reasoning, unless otherwise stated, · all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) · reference material(s) referred to are available on the Australian Taxation Office (ATO) website ato.gov.au | Detailed Reasoning - Question 1 - requirement to register: Section 23-5 states that you are required to be registered for GST if: (a) you are carrying on an enterprise; and (b) your GST turnover meets the registration turnover threshold (currently $75,000). The term 'enterprise' is defined in section 9-20 and includes an activity, or series of activities, done by a trustee of a complying superannuation fund or, if there is no trustee of the fund, by a person who manages the fund. As such, any activity or series of activities conducted by the trustee of a complying superannuation fund is considered to be an 'enterprise' for GST purposes. Therefore we consider you are carrying on an enterprise for the purposes of paragraph 23-5(a). The next issue to consider is whether your GST turnover is $75,000 or more. Subsection 188-10(1) provides that you have a GST turnover that meets the registration turnover threshold if: (a) your current GST turnover is at or above $75,000 and the Commissioner is not satisfied that your projected GST turnover is less than $75,000; or (b) your projected GST turnover is at or above $75,000. 'Current GST turnover' is defined in section 188-15 as the sum of the values of all of your supplies made in a particular month and the preceding 11 months. 'Projected GST turnover' is defined in section 188-20 as the sum of the values of all of your supplies made in a particular month and the following 11 months. You contend that where you are considered to be carrying on an enterprise, the sale of the vacant land would constitute the sale of a capital asset and would not trigger a requirement to register for GST. Section 188-25 provides that in calculating 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 of yours. 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 this issue. The meaning of 'capital assets' is discussed at paragraphs 31 to 36 of GSTR 2001/7: Meaning of 'capital assets' 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. 33. Capital assets are 'radically different from assets which are turned over and bought and sold in the course of trading operations'. An asset which is acquired and used for resale in the course of carrying on an enterprise (for example, trading stock) is not a 'capital asset' for the purposes of paragraph 188-25(a). 34. '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'. 35. 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. Isolated transactions are discussed further at paragraphs 46 and 47 of this Ruling. 36. Over the period that an asset is held by an entity, its character may change from capital to revenue or from revenue to capital. For the purposes of section 188-25 the character of an asset must be determined at the time of expected supply. We acknowledge that at the time of your acquisition of the land in xxxx, your intention was to construct residential dwelling for the purpose of generating rental income. We acknowledge that at this time, the 'asset' would be correctly regarded as a 'capital asset' of a proposed rental enterprise. Paragraph 260 in MT 2006/1 states that assets can change their character but cannot have a dual character at the same time. Your intentions subsequently changed and the original asset has been subdivided into 2 lots, for which one is now held for the purpose of sale. Paragraph 270 in MT 2006/1 provides that in isolated transactions, where land is sold that was purchased with the intention of resale at a profit (which would be ordinary income) the Commissioner considers these activities to be an enterprise. This would be so whether the land was sold as it was when it was purchased or whether it was subdivided before sale. An enterprise would be carried on in this situation because the activities are business activities or activities in the conduct of a profit making undertaking or scheme and therefore an adventure or concern in the nature of trade. We consider, notwithstanding your original intention, that the nature or character of the asset (vacant lot) has changed and would now no longer be regarded as a 'capital asset'. The land which has been subdivided is to be sold as vacant land and has not been used to generate or derive income. Therefore, we do not consider the sale of the vacant land to fall within the scope of section 188-25. Consequently, given the anticipated sale price of the vacant lot, your GST turnover would meet the GST registration turnover threshold of $75,000 and you are required to register for GST in accordance with section 23-5. | Detailed Reasoning - Question 2 - liability for GST: Section 9-40 provides that you are liable for GST on any taxable supplies that you make. Provides that GST is payable on any taxable supply you make. 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 to the indirect tax zone (Australia); and (d) you are registered or required to be registered for GST. However, the supply will not be a taxable supply to the extent the supply is GST-free or input taxed. In this case, the sale of the vacant lot will be made for consideration and is located in Australia. Also, as discussed above, the sale will be in the course of carrying on your enterprise and whilst you are not currently registered, you are required to be registered. Furthermore, the sale of vacant land is neither GST-free nor input taxed. Therefore, you will be liable to pay GST in relation to your sale of the vacant lot in accordance with section 9-40.