Private ruling: Sale of property
Date of advice: 8 February 2019
Published: May 2019

Ruling: Q1: Is the sale of your property subject to GST? | A1: No, the sale of your property is not subject to GST on the basis that you never had the intention of buying and selling properties.

Relevant facts and circumstances: You are a Trust. The intention of setting you up was to purchase investment properties and hold them long-term for wealth creation for the beneficiaries of the trust and eventually pass the title to the beneficiaries. In a particular year, you purchased a property. There was a dwelling on the property which was rented out by the entity from whom you purchased the property. There was no GST included in the sale price. You continued to rent the property until you obtained a development approval to develop the property and started to developing the property. During the time the property was being developed (which required the existing house to be demolished) the property was not rented out. As part of the development, the property was subdivided into two lots. You built a duplex on these newly created properties. The intention of building the duplex was to hold them long term for rental purposes. There has never been an intention of selling any of the properties in the short term. A few days after development activities were completed, you sold one of the newly created dwellings. Whilst the intention of building this property was also to rent, due to change in financial circumstances one of the dwellings had to be sold. You rented out the remaining newly created dwelling to a third party at arm’s length for market rate of rent a few months after development works were completed. After a few years of the dwelling being rented, you entered into a sale contract to sell this property as well. You hold a few other rental properties. You have not engaged in any other property development activities other than the developing the property mentioned in this Ruling. You have not conducted any other enterprise other than holding the above mentioned properties for rental purposes as long-term investment. Currently you are not registered for GST. You have not claimed any input tax credits on the construction costs or any other expense in relation to development of the property.

Relevant legislative provisions: Section 9-5 of the A New Tax System (Goods and Services Tax) 1999 | Section 188-25 of the A New Tax System (Goods and Services Tax) 1999

Reasons for decision: Summary: GST is payable on a taxable supply. A taxable supply is defined in section 9-5 of the GST as follows: You make a taxable supply if: (a) y ou 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 . (terms marked with asterisks (*) are defined in section 195-1 of the GST Act) In this case what needs to be determined is whether paragraph 9-5 (d) of the GST Act is satisfied (that is, whether you are required to be registered for GST due to the sale of the property. In this regard the current nature of the enterprise that you have been carrying on is important. Given that your current intention is to hold the properties long-term to rent them out, it is our view that currently the enterprise that you are carrying on is that of a rental enterprise. It should be noted that if you continue to sell your properties in the short-term, this may require us to reconsider the nature/character of your enterprise. Given that your enterprise is currently that of a rental enterprise, the property that you recently sold is considered as a capital asset of that enterprise. Pursuant to section 188-25 of the GST Act, the sale proceeds of a capital asset is not included in the calculation of the projected turnover of an entity. Given that you do not conduct any other enterprise other than renting out residential premises, your annual turnover is below the GST registration turnover threshold of $75,000. Accordingly, you are not required to be registered for GST. Consequently as paragraph 9-5(d) of the GST Act is not satisfied, the sale of the property not a taxable supply and as such no GST is payable on this sale.