Is the sale of xxx an input taxed supply pursuant to section 40-65 of the GST Act .
No. The sale of xxx pursuant to section 40-65 of the GST Act. However, as you are not required to be registered for GST, the supply will not be a taxable supply. This ruling applies for the following period : 1 July 2025 to 30 June 20YY The scheme commences on: DD MM YYYY
You are individuals who do not have an Australian Business Number (ABN) and are not registered for GST. On xx xxxx xxxx as joint tenants you purchased vacant land at xxx for $xxx as a fully taxable supply. Your intention when purchasing xxx was to construct a residential duplex with dual occupancy which were to become known as xxx and xxx to be held for long-term rental investment purposes. On xx xxxx xxxx, you engaged and entered a Building Contract with xxx for the construction of Duplex 1 and Duplex 2 for $xxx. On xx xxxx xxxx, xxx advised they had completed preconstruction obligations under the Building Contract and that the revised Building Contract Price is now $xxx. Due to a massive delay in the pre-construction timeframe of xxx build project your original pre-approved loan had expired and the bank required you to re-apply for a new home construction loan. On xx xxxx xxxx, xxx approved you for an interest only construction loan for $xxx. You contributed $xxx for the development from personal savings.
The purpose of the loan was to purchase a residential investment property, and you were seeking credit to partial funding for new duplex construction of fully owned land to generate ongoing income. Due to the COVID-19 pandemic, the development experienced significant delays and cost escalations, which led to prolonged construction timelines and increased financial burden. As a result of the delays and increased borrowing costs, you began to experience financial distress. You were living off savings and had not received any income for some time owing to the ongoing legal case pertaining to the sale of your business. On xx xxxx xxxx, you sold xxx rental property at xxx which was to invest in a term deposit to minimise ongoing costs and generate some income. The funds from the sale of xxx were put aside (quarantined) to fund the build project for a second duplex to be constructed on xxx which was acquired at the same time as xxx. On xx xxxx xxxx, as you anticipated delays on the pre-construction phase of xxx and to mitigate the construction industry cost increases experience post COVID-19 you entered into a building contract with xxxx for the project on xxx for $xxx.
The xxx project was originally forecast to start after completion and rental of both on xxx. Construction began on xxx on xx xxxx xxxx and is expected to be completed in xxx or xxx xxx. Your intentions for the development on xxx is to rent both dwellings and council has pre-allocated the split street numbering as follows: On xx xxxx xxxx, handover on Duplex 1 and Duplex 2 You have not previously been involved in any property development. Due to lower-than-expected rental estimates, you were forced to re-assess your future plan were forced to sell one Duplex 1 in lieu of renting both in order to repay accumulated debts and to cover ongoing living costs. The original intention and continuing intention were to retain Duplex 1 and Duplex 2 for rental income and selling Duplex 1 was not part of the original plan. On xx xxxx xxxx, you entered into a xx-month lease agreement to rent out Duplex 2, however Duplex 1 has never been rented or made available for rent. On xx xxxx xxxx, you received Subdivision Certificate Notice of Determination approval to subdivide xxx into a 2 Lot Torrens Title.
On xx xxxx xxxx, you entered into a contract to sell Duplex 1 for $xxx, however settlement cannot occur until State 1 LRS issues the newly created land title as per clause 50 of the sales contract.
A New tax System (Goods and Services Tax) Act 1999 section 9-5 A New tax System (Goods and Services Tax) Act 1999 section 9-20 A New tax System (Goods and Services Tax) Act 1999 section 9-40 A New tax System (Goods and Services Tax) Act 1999 section 11-15 A New tax System (Goods and Services Tax) Act 1999 section 23-5 A New tax System (Goods and Services Tax) Act 1999 section 23-15 A New tax System (Goods and Services Tax) Act 1999 section 40-35 A New tax System (Goods and Services Tax) Act 1999 section- 40-65 A New tax System (Goods and Services Tax) Act 1999 section 40-75 A New tax System (Goods and Services Tax) Act 1999 section 188-10 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 (Go
Under section 9-5 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 Australia, 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. There is no provision in the GST Act that makes your supply GST-free. Input taxed supply Section 40-65(1) provides that the sale of real property is input taxed to the extent the property is residential premises to be used predominately for residential accommodation (regardless of the term of occupation). However, the sale of the residential property is not input taxed in accordance with subsection 40-65(2) to the extent that the residential premises are: a) commercial residential premises; or b) new residential premises other that those used for residential accommodation before 2 December 1998. Residential premises' is defined in section 195-1 as land or a building that:
a) is occupied as a residence or for residential accommodation, or b) is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation. (regardless of the term of the occupation or intended occupation). Guidance on whether premises are considered residential premises is provided in Goods and Services Tax Ruling 2012/5 Goods and Services Tax: residential premises (GSTR 2012/5). Paragraphs 9, 10 and 15 of GSTR 2012/5 highlight a single test that looks to the physical characteristics of the property to determine the premises suitability and capability for residential accommodation. Paragraph 15 of GSTR 2012/5 states: To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation. In this case, Duplex 1 will satisfy the definition of 'residential premises' as the premises provide shelter and basic living facilities such as bedrooms, bathrooms, kitchen, living areas and laundry.
We will now consider below if Duplex 1 constitutes new residential premises within the meaning of section 40-75. New Residential Premises Under subsection 40-75(1), residential premises are new residential premises if they: a) have not previously been sold as residential premises and have not previously been the subject of a long-term lease; or b) have been created through substantial renovations of a building; or c) have been built or contain a building that has been built to replace demolished premises on the same land. However, in accordance with subsection 40-75(2), residential premises are not new residential premises if, for the period of at least 5 years since: (a) the premises first became residential premises: where the premises have not been previously been sold as residential premises and have not previously been the subject of a long term lease (b) the premises were last substantially renovated: where the premises have been created through substantial renovations of a building, or
(c) the premises were last built: where the premises have been built, or contain a building that has been built to replace demolished premises on that same land. Paragraph 40-35(1)(a) 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 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). In your case, Duplex 1 has not been leased out and you will not be leasing Duplex 1 prior to the sale. Accordingly, Duplex 1 is new residential premises under subsection 40-75(1) as it has not been previously sold as a residential premise and has not been the subject of a long-term lease. Therefore, we need to determine if the sale will be a taxable supply. You satisfy paragraphs 9-5(a) and 9-5(c) as you will sell Duplex 1 for consideration and the sale is connected with Australia since it is located in Australia.
We will now need to consider paragraph 9-5(b); whether the sale of Duplex 1 will be made in the course or furtherance of an enterprise you carry on and paragraph 9-5(d), as currently you are not registered for GST, whether you are required to be registered for GST. Enterprise The definition of an enterprise in section 9-20 of the GST Act includes (amongst other things) an activity or series of activities, done: • in the form of a business • in the form of an adventure or concern in the nature of trade, or • on a regular or continuous basis, in the form of a lease, license or other grant of an interest in property. Section 195-1 states that the phrase 'carrying on' in the context of an enterprise includes 'doing anything in the course of the commencement or termination of the enterprise'. Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) provides our view on the meaning of 'enterprise' for the purposes of entitlement to an Australian Business Number (ABN).
Paragraph 159 of MT 2006/1 states that whether or not an activity constitutes an enterprise is a question of fact and degree depending on the circumstances of each individual case. Paragraph 234 of MT 2006/1 distinguishes between activities done in the form of a business and those done in the form of an adventure or concern in the nature of trade. A business encompasses trade engaged in on a regular basis. An adventure or concern in the nature of trade includes an isolated or one-off transaction that does not amount to a business, but which has the characteristics of a business deal. Paragraphs 258 to 261 of MT 2006/1 discuss the concept of trade versus investment assets. Investment assets are assets purchased with the intention of holding them for income producing purposes or assets such as the family home and other private assets held for the pleasure or enjoyment of a person. Further, assets can change their character but cannot have a dual character at the same time. Paragraphs 262 to 302 of MT 2006/1 consider isolated transactions and sales of real property.
Paragraph 263 of MT 2006/1 states that the issue to be decided is whether the activities are an enterprise, in that they are of a revenue nature, as opposed to the mere realisation of a capital asset. A mere realisation of investment assets does not amount to 'trade'. That is, more than a mere realisation of an investment asset is required for an activity to amount to a trading activity and the character of the activity as a whole needs to be considered. Depending on the facts, an isolated transaction, such as subdividing or developing land, may amount to the carrying on of an enterprise where the activity has the characteristics of a business deal. Paragraph 265 of MT 2006/1 refers to Statham & Anor v. Federal Commissioner of Taxation 89 ATC 4070; 20 ATR 228 and Casimaty v. FC of T 97 ATC 5135; (1997) 151 ALR 242; 37 ATR 358 which established a number of factors that provide assistance in determining whether activities are a business or an adventure or concern in the nature of trade. These factors are as follows: • there is a change of purpose for which the land is held • additional land is acquired to be added to the original parcel of land
• the parcel of land is brought into account as a business asset • there is a coherent plan for the subdivision of the land • there is a business organisation - for example a manager, office and letterhead • borrowed funds financed the acquisition or subdivision • interest on money borrowed to defray subdivisional costs was claimed as a business expense • there is a level of development of the land beyond that necessary to secure council approval for the subdivision • buildings have been erected on the land. As stated in paragraph 266 of MT 2006/1, no single factor will be determinative. Rather it will be a combination of factors that will lead to a conclusion as to the character of the activities.
The property was purchased for development and to construct a duplex for dual occupancy for the purposes of leasing long-term. The development was funded with personal savings and an interest-only commercial bank loan from NAB on the basis that the duplexes would be held for rental purposes. The loan application supplied and emails from your banker supports your planned intention to lease both duplexes on completion. Due to financial circumstances, you have now been forced to sell Duplex 1. You have been leasing out Duplex 2 since xxx xxxx and xxx previously held a residential premises that was leased until it was sold in 20YY and will be used to fund the development on xxx. You have not been involved previously in any property development. Therefore, we consider that you are carrying on an enterprise of leasing and the sale of the property will be in the course or furtherance of your leasing enterprise. As you are not registered for GST, we need to consider whether you are required to be registered for GST. GST registration Section 23-5 of the GST Act provides that you are required to be registered under this Act if: (a) you are carrying on an enterprise, and
(b) your annual turnover meets the registration turnover threshold. Subsection 23-15(1) of the GST Act provides that your registration turnover threshold (other than a non-profit body) is $xx,000. Section 188-10 states: (1) You have a GST turnover that meets a particular turnover threshold if: (a) your current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the turnover threshold; or (b) your projected GST turnover is at or above the turnover threshold. Under section 188-15 of the GST Act: (1) Your current GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during the 12 months ending at the end of that month, other than: (a) supplies that are input taxed; or (b) supplies that are not for *consideration (and are not taxable supplies under section 72-5); or (c) supplies that are not made in connection with an enterprise that you carry on.
In your case, the income you will derive in the month of settlement, and the preceding 11 months will be income derived from the sale of Duplex 1 which will be over $xx,000. Under section 188-20 of the GST Act: (1) Your projected GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during that month and the next 11 months, other than: (a) supplies that are input taxed; or (b) supplies that are not for consideration (and are not taxable supplies under section 72-5); or (c) supplies that are not made in connection with an enterprise that you carry on. In working out your projected GST turnover, section 188-25 of the GST Act says to disregard: (a) any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours; and (b) any supply made, or likely to be made, by you 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 (GSTR 2001/7) includes guidance on the meaning capital assets. GSTR 2001/7 explains: 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 [...] 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. 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. [Footnotes excluded]. In your case, Duplex 1 was held by you to produce rental income. Therefore, Duplex 1 had been intended to be the profit yielding subject of your leasing enterprise. As such, we consider Duplex 1 is a capital asset.
As the sale of Duplex 1 will represent the transfer of ownership of a capital asset, the proceeds from the sale of will be excluded from calculating your projected annual turnover. Therefore, as your current and projected annual turnover from your leasing enterprise is less than $xx,000, you would not be required to be registered for GST. As you are neither registered nor required to be registered for GST, you have not satisfied all the requirements of section 9-5. As a result, the sale of Duplex 1 will not constitute a taxable supply and GST will not be applicable to your sale.