Private ruling: Capital gains tax and goods and services tax
Date of advice: 23 June 2017
Published: October 2017
Ruling period: Year ending 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Have the pre-capital gains tax (CGT) assets acquired by the company become post-CGT assets pursuant to section 149-30 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No Issue 2 | Q2: Will your supply of the Properties be a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act 1999)? | A2: Yes

Relevant facts and circumstances: The Company (In Liquidation) was incorporated on XX July 19XX. The Company is registered for GST. The company’s Directors and Shareholders were B and their spouse C who each held a 50% shareholding in the company. After B’s death in 20XX, their shares were transferred to their spouse, C, who is now the 100% shareholder of the company. The company acquired a number of properties (the properties) prior to 20 September 1985. All the properties, with the exception one are currently vacant blocks of land. There is currently a residential dwelling situated on one lot, which was constructed prior to acquisition. On XX April 20XX, D, was appointed as liquidator to the Company. The Properties are to be sold to the purchaser for the collective amount of $X with the date for settlement to be confirmed. The Purchaser is not registered for GST. The Company was not carrying on the business of property development and no development works have been undertaken on the Properties.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 149 | Income Tax Assessment Act 1997 Section 149-15 | Income Tax Assessment Act 1997 Section 149-30 | A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 subsection 9-20(1) | A New Tax System (Goods and Services Tax) Act 1999 subsection 58-10(1) | A New Tax System (Goods and Services Tax) Act 1999 Division 195

Reasons for decision: Detailed Reasoning - Issue 1: Division 149 of the ITAA 1997 outlines the rules which govern when an asset acquired by a taxpayer before 20 September 1985 is treated as being acquired after that date for capital gains tax (CGT) purposes. Under subsection 149-30(1) of the ITAA 1997, a pre-CGT asset of a non-public entity stops being a pre-CGT asset at the earliest time when the majority underlying interest in the asset were not had by the ultimate owners who had the majority underlying interests in the asset immediately before 20 September 1985. Subsection 149-15(1) of the ITAA 1997 provides that majority underlying interests in a CGT asset consists of: ● more than 50% of the beneficial interests that ultimate owners have (whether directly or indirectly) in the asset; and ● more than 50% of the beneficial interests that ultimate owners have (whether directly or indirectly) in any ordinary income that may be derived from the asset. Subsection 149-30(4) of the ITAA 1997 provides that if an ultimate owner (new owner) has acquired an interest in an asset which is transferred to them as a result of the death of a person (the former owner), the new owner is treated as having held the underlying interest of the former owner over the years. Essentially the new owner will stand in the shoes of the former owners. In this case, following B’s death, their shares passed to C. In accordance with subsection 149-30(4) of the ITAA 1997, C would have been taken to have held those shares from B’s date of acquisition. Accordingly, the majority underlying interests have not changed, and the assets acquired by the company prior to 20 September 1985 will retain their pre-CGT status. | Detailed Reasoning - Issue 2: Subsection 58-10(1) of the GST Act 1999 states: Circumstances in which representatives have GST-related liabilities and entitlements (1) A *representative of an *incapacitated entity: (a) is liable to pay any GST that the incapacitated entity would, but for this section or section 48-40, be liable to pay on a *taxable supply or a *taxable importation; and (b) is entitled to any input tax credit that the incapacitated entity would, but for this section or section 48-45, be entitled to for a *creditable acquisition or a *creditable importation; and (c) has any *adjustment that the incapacitated entity would, but for this section or section 48-50, have; to the extent that the making of the supply, importation or acquisition to which the GST, input tax credit or adjustment relates is within the scope of the representative’s responsibility or authority for managing the incapacitated entity’s affairs. To determine whether you will be liable to remit any GST as a result of the sale of the Properties, it is necessary to consider whether the Company would have been liable to remit any GST on the sale of the Properties had it sold them. Section 9-5 of the GST Act 1999 provides that you make a taxable supply if: (a) you make the supply for consideration (b) the supply is made in the course or furtherance of an enterprise that you carry on (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. For the sale of the vacant land to be a taxable supply, all of the requirements listed in section 9-5 of the GST Act 1999 must be satisfied. On the information you have provided, the sale of the vacant land will meet the requirements in paragraphs 9-5(a), (c) and (d) of the GST Act 1999. The definition of “carrying on an enterprise” in Division 195 of the GST Act 1999 includes doing anything in the course of the commencement or termination of the enterprise. It is therefore necessary to determine whether the sale of the Properties will be made in the will be made in the course or furtherance of an enterprise being carried on. Subsection 9-20(1) of the GST Act 1999 defines 'enterprise' to include an activity, or series of activities, done: ● in the form of a business, or ● in the form of an adventure or concern in the nature of trade You have advised that the Company was not carrying on the business of property development and that no development works have been undertaken. Therefore, based on the information provided, the sale of the vacant land is an isolated transaction. Even though the Company is not carrying out the enterprise of property development and no development works have been carried out, the land being sold is still an asset that it initially purchased to use in its enterprise. Applying ATO Interpretive Decision ATO ID 2003/701: The entity is selling an asset that it initially purchased to use in its enterprise. This is a sale that is connected with the entity’s enterprise. Therefore, although the entity did not actually use the asset, the sale is made in the course or furtherance of the entity’s enterprise. As all elements necessary to constitute a taxable supply are present, your supply of the Properties will be a taxable supply.