Will the sale of a residence at Location A be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Yes. This ruling applies for the following tax periods : From the tax period commencing DATE A and ending the tax period DATE B. The scheme commenced on: X DATE
You are not registered for GST. You are a complying superannuation fund. You have held an ABN since DATE A. You purchased the property and the title was transferred on X DATE for over $100,000 as vacant land. You are the owner of the property. You used to sell old investment properties: o Property A o Property B o Property C They were properties that were more than 30 years old and were held out for rent. After some years, you sold them because of the high interest rates and Covid. The property was bought on DATE B as vacant land. The taxpayers did not seek consultants to build at the property but you did acquire services of a builder to construct new residential premises. The company officers have experience in building and selling new properties. You decided to sell the property due to flood zone issues as it is too risky to keep for future retirement fund purposes. The properties you built and sold during the last 5 years: Property D sold for under $500,000 in DATE C. o Property E sold DATE F for over $500,000. o Property F sold in DATE G for over $500,000 Property G sold in for over $500,000
The property - (Total land, construction and other cost was over $500,000) sold for over $500,000 - The apparent gain is $X however as you paid interest, landscaping and other costs you did not make a profit on this sale. Of these properties, constructed and sold in the last five years, some made profits and some made losses. The sale of the property was effected recently and you are awaiting this ruling to determine if GST should be in the sale price. The sale agreement is a 'Land Contract' dated DATE H. The sale price in the contract is over $500,000. Settlement is stated as Y days from the contract date. There is a check box for GST which has not been selected. There is also a box for selecting whether the margin scheme will apply. This has a box filled in and crossed out and a new unchecked box drawn in. The contract also describes the property as DESCRIPTION A.
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 23-5 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 (Goods and Services Tax) Act 1999 section 195-1 Superannuation Industry (Supervision) Act 1993 section 45 Income Tax Assessment Act 1997 section 995-1 Does Division 165 apply to this private ruling? No.
The principal issue is whether you make a taxable supply of the property. To answer this question we need to consider each of the elements of section 9-5 and whether the sale falls under any of the exemptions to a taxable supply. Section 9-5. It states: 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 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. The first step is to determine what is supplied for consideration under paragraph 9-5(a). Sales of 'residential premises' are input taxed due to the operation of section 40-65 set out below but the sale of new residential premises is a taxable supply where all the requirements of section 9-5 (also below) are met. '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 occupation) and includes a floating home. Further, section 40-65 provides: (1) A sale of *real property is input taxed, but only to the extent that the property is *residential premises to be used predominantly for residential accommodation (regardless of the term of occupation). (2) However, the sale is not input taxed to the extent that the *residential premises are: (a) commercial residential premises; or (b) new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998. ... Section 40-75 sets out when premises are new residential premises (1) *Residential premises are new residential premises if they: (a) have not previously been sold as residential premises (other than *commercial 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.
Paragraphs (b) and (c) have effect subject to paragraph (a). Note 1: For example, residential premises will be new residential premises if they are created as described in paragraph (b) or (c) to replace earlier premises that had ceased to be new residential premises because of paragraph (a). Note 2: However, premises that are new residential premises because of paragraph (b) or (c) will cease to be new residential premises once they are sold, or supplied by way of long - term lease, as residential premises (see paragraph (a)). Note 3: Premises created because of the registration of, for example, a strata title plan, or a plan to subdivide land, may not become new residential premises (see subsection (2AA)). (2) However, the *residential premises are not new residential premises if, for the period of at least 5 years since: (a) if paragraph (1)(a) applies (and neither paragraph (1)(b) nor paragraph (1)(c) applies)--the premises first became residential premises; or (b) if paragraph (1)(b) applies--the premises were last *substantially renovated; or (c) if paragraph (1)(c) applies--the premises were last built;
the premises have only been used for making supplies that are *input taxed because of paragraph 40 - 35(1)(a). Subsection 40-75(1) defines 'new residential premises', amongst other things, as premises that have not been previously sold or subject to a long-term lease. As the premises in question were constructed after DATE B and the property was recently sold as habitable residential premises, the property is new residential premises. That is, under paragraph 40-75(1)(a), the premises have not been previously sold as new. Additionally, under paragraph 40-75(2)(a), as you did not hold the property out for rent for a continuous period of five years, it remains new residential premises. Accordingly the supply you made was new residential premises. If all the indicators of section 9-5 are met, a supply of new residential premises is a taxable supply. The type of supply is also relevant to the discussion below about registration for GST. Continuing the taxable supply analysis, the sale is for consideration of over $500,000 so paragraph 9-5(a) is met. Also the supply is connected with the indirect tax zone as the property is situated in Australia meeting paragraph 9-5(c).
The remaining elements of a taxable supply to consider are whether: o you make the supply in the course of your enterprise under paragraph 9-5(b), o you are required to be registered under paragraph 9-5(d) and o any of the exceptions to section 9-5 apply. Do you make the supply in the course of your enterprise? Under section 9-20: (1) an enterprise is an activity, or series of activities, done (a) in the form of a business; (b) In the form of an adventure in the nature of trade; ... (da) by a trustee of a complying superannuation fund Section 195-1 defines "complying superannuation fund" as having the same meaning as that term in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997). Section 995-1 of ITAA 1997 defines that term "complying superannuation fund" means a complying superannuation fund within the meaning of section 45 of the Superannuation Industry (Supervision) Act 1993. Section 45 of the Superannuation Industry (Supervision) Act 1993 states: Complying superannuation fund (1) A fund is a complying superannuation fund for the purposes of the Income Tax Assessment Act in relation to a year of income (the current year of income ) if, and only if:
(a) the Regulator has given a notice to a trustee of the fund under section 40 stating that the fund is a complying superannuation fund in relation to the current year of income; or (b) the Regulator has given a notice to a trustee of the fund under section 40 stating that the fund is a complying superannuation fund in relation to a previous year of income and has not given a notice to a trustee of the fund under that section stating that the fund was not a complying superannuation fund in relation to: (i) the current year of income; or (ii) a year of income that is: (A) later than that previous year of income; and (B) earlier than the current year of income. The Australian Business Register allows searching for superannuation fund details on the superannuation fund related entries on the register. A search of your details on that public accessible register indicates that you are a fund type of an 'ATO regulated self-managed superannuation fund'. It also indicates that your status is 'complying'. The register itself includes the following explanation: What does 'Complying' mean? A 'Complying' SMSF: • is a regulated fund • is a resident of Australia, and
• has been issued with a Notice of compliance In this respect, you are a complying superannuation fund for the purposes of section 9-20. That is, your activities are an enterprise. This was discussed briefly in Ian Mark Collins & Mieneke Mianno Collins ATF The Collins Retirement Fund and Commissioner of Taxation (Taxation) [2022] AATA 628 (Collins) at paragraph 10 of Senior Member Olding's decision: 10. The applicant would have been required to be registered for GST only if it carried on an enterprise and its GST turnover met the registration turnover threshold. It is common ground that the applicant, as the trustee of a superannuation fund, is taken to have carried on an enterprise. Consequently the sale of the property will be made in the course of your enterprise as a superannuation fund satisfying paragraph 9-5(b). Registration 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).
As discussed above, your activities fall within the scope of 'carrying on an enterprise' of property development. Consequently, you meet paragraph 23-5(a) above and the next issue to be considered is whether the consideration for the sale of the property you receive is 'GST turnover'. If so, you may have exceeded the $75,000 registration turnover threshold. Division 188 is about the 'meaning of GST turnover'. Section 188-10 is relevant for working out whether an entity's GST turnover meets, or does not exceed, a turnover threshold. Under subsection 188-10(1) an entity's GST turnover meets a particular turnover threshold when: (a) the entity's [your] current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that the entity's projected GST turnover is below the turnover threshold; or (b) the entity's projected GST turnover is at or above the turnover threshold.
Section 188-15 defines 'current GST turnover' and that, subject to certain exclusions, the current GST turnover at any time during a particular month is the sum of the values of all the supplies that an entity made, or are likely to make, during the current month and the preceding 11 months. Section 188-20 defines 'projected GST turnover' and, subject to certain exclusions, the projected GST turnover at a time during a particular month is the sum of the values of all the supplies that an entity made, or are likely to make, during that month and the next 11 months. For both the current and projected GST turnover, the exclusions include supplies that are input taxed. As indicated above the supply is new residential premises and therefore a taxable supply where all conditions of section 9-5 are met. As you have sold the property, it will be a taxable supply because you are selling it as new residential premises. Therefore, it will not be excluded from the calculation of the current and projected GST turnover. Conclusion The property sale is a taxable supply.