Is the sale of the property located at <address> in Australia (the Property) a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 when Person A sells the property with a proposed settlement date of (date, month, year)?
No. The sale of the property is not a taxable supply. This ruling applies for the following period Any tax periods ending on or after 1 July YYYY The scheme commences on: 1 July 2023
1. On (date, month, year), Person A (you) and, Person B (your spouse), acquired a property located at <address> (Property A) for $amount. 2. The property is a commercial property and is zoned for industrial use. 3. You and your spouse operated a leasing enterprise - leasing the property to two related entities - Entity A and Entity B. 4. You are not registered or required to be registered for GST. 5. On (date, month, year), your spouse passed away and his beneficial ownership share of the property passed to you. 6. From (date, month, year), you leased the property to Entity A (the lessee) until (date, month, year), when the property was vacated. You did not enter in a formal lease arrangement with the lessee. 7. The lessee is a related party. You were not receiving monetary rental income from the lessee; however, under an informal lease agreement, the lessee was responsible for paying for expenses in relation to the management and upkeep of the property such as council rates, water rates, land tax and building insurance.
8. You provided details of the expenses paid by the lessee for the leased commercial property under the informal lease arrangement and at all times, your income attributable to the leasing enterprise was beneath the GST registration turnover threshold. 9. On (date, month, year), you ceased the informal leasing arrangement with the lessee when the property was vacated, and the lessee moved to new business premises. 10. On (date, month, year), you entered into a contract of sale to sell the commercial property to Person C and/or nominee. The sale price of the property is $amount, and settlement is due on (date, month, year). 11. You did not make any improvements or development to the commercial property prior its sale. 12. You currently reside at another property located at <address> in Australia (Property B) and own a holiday house located at <address> in Australia (Property C) and use both for private purposes. 13. You do not currently carry on any other enterprise.
A New Tax System (Goods and Services Tax) Act 1999 section 9-5 A New Tax System (Goods and Services Tax) Act 1999 section 23-5 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 188-15 A New Tax System (Goods and Services Tax) Act 1999 section 188-20 A New Tax System (Goods and Services Tax) Act 1999 section 188-25
Detailed reasoning In this reasoning, unless otherwise stated, • all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act); • all legislative terms marked with an asterisk (*) are defined in section 195-1 of the GST Act; • where the term 'Australia' is used, it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act; and • all reference materials referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you make a taxable supply if you meet the following requirements: (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. All of the above requirements of a taxable supply under section 9-5 must be met for the supply to be a taxable supply.
In this case, Person A (you) will supply the property for $amount. You are making the supply as part of ceasing your leasing enterprise. The property is a commercial property and is zoned for industrial use in Australia. You are not registered for GST purposes. The supply satisfies the requirements of paragraphs 9-5(a), (b) and (c) above as the supply is for consideration, is made in the course of an enterprise that you carry on, and is connected with the indirect tax zone. Further, as the property is a commercial property, its sale will not constitute an input taxed supply and no provisions of the GST Act apply to make the supply GST-free. What remains to be considered is whether you are required to be registered for GST. GST registration Section 23-5 explains 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. In this case, you are carrying on an enterprise of leasing commercial property. As such paragraph 23-5(a) is satisfied.
For the purposes of paragraph 23-5(b), the meaning of GST turnover is contained in Division 188. Subsection 188-10(1) provides that your GST turnover will meet 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. Your '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. Your '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. 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.
As evidenced by the table detailing the expenses paid by the lessee for the leased commercial property, your total lease income attributable to your leasing enterprise for the period (date, month, year) until (date, month, year) did not exceed the current GST turnover threshold of $75,000. However, we need to consider your projected GST turnover, and if the supply of the property meets the requirements of section 188-25 and should be disregarded when calculating your projected GST turnover. Capital Assets Section 188-25 provides that the following are disregarded in working out your projected GST turnover: a) any supply made, or likely to be made, by the taxpayer by way of transfer of ownership of a capital asset of the taxpayer's; and b) any supply made, or likely to be made, by the taxpayer solely as a consequence of: i. ceasing to carry on an enterprise; or ii. substantially and permanently reducing the size or scale of an enterprise. 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. Taking into account the facts of this case, we consider the proposed sale of the commercial property would constitute the transfer of a capital asset for the purposes of section 188-25 and is therefore disregarded when calculating your projected GST turnover. Conclusion
As your 'current GST turnover' and 'projected GST turnover' will not meet the registration turnover threshold of $75,000, you do satisfy paragraph 23-5(b) and are not required to be registered pursuant to section 23-5. As you are not registered or required to be registered for GST, not all elements of section 9-5 are satisfied, and the sale of the property located at <address> in Australia (Property A) will not be a taxable supply.