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Whether a sale of property is subject to GST will be dependent on a number of factors. The sale of real property must be made in the course or furtherance of an enterprise before it is brought into the GST system.
One way to explain the relevant considerations is through an example:
Alan, a sole trader in business as a butcher, and who is registered for GST, decides to sell a block of land he has held for many years for personal purposes. He would not be liable for GST on this transaction as the sale was not made in the course or furtherance of his butcher enterprise.
If, however, Alan sold the premise that was used for his butcher business, the disposal is a disposal of a capital asset that is connected to his enterprise. As he is registered for GST and the property is a commercial property, the sale will be subject to GST. It may not be in the ordinary course of Alan’s butchery business to sell the property, but it is still considered to be in the course or furtherance of his enterprise to dispose of a capital asset.
An entity’s GST registration status will also determine whether a sale of real property is subject to GST. An entity not registered and not required to be registered for GST will not be required to charge GST on the sale of the property.
Note however that a single activity of developing and selling a property could be sufficient for the ATO to require a person to be registered for GST, as they may be considered to be carrying on an enterprise for GST purposes (an adventure in the nature of trade).
Mere realisation of assets will not however be considered an enterprise. The ATO will generally take a narrow view of what amounts to a mere realisation and in its guidance has published many examples of what may and may not constitute an enterprise in respect of buying and selling real property.
If an entity that owns real property derived rental income from such property but was not required to register for GST as it was under the registration threshold, it is not required to register for GST when it sells the property on the basis that it is a sale of a capital asset (that is, the property was never acquired to re-sell at a profit). Capital assets are excluded from the calculation of projected GST turnover for GST registration purposes.
|Summary of GST status for sale of real property|
|Type of property||Example||GST treatment|
|Residential premises||Existing residence||Input taxed|
|New residential premises||Newly built or substantially renovated or built to replace||Taxable*|
|Commercial residential||Hotel, motel, boarding house||Taxable*|
|Commercial property||Factory, office||Taxable*|
|Farm land||Sale to farmer||GST-free if sold on the basis of continued use as farm land|
|Going concern||Sale of property as part of an enterprise||GST-free if conditions satisfied|
Boarding house/on site caravan
|Commercial property||Factory, office||Taxable*|
|Lease for more than 50 years||Lease for 100 years||Treated as a sale (see above table)|
|* Taxable provided taxable supply requirements are all satisfied.|
The sale of a property used for leasing purposes by an entity carrying on a leasing enterprise is excluded from the calculation of its projected GST turnover as the property is a capital asset of the enterprise and not trading stock. In such circumstances, an entity may not be required to be registered for GST at all, and therefore the sale of the property will not be subject to GST because not all the requirements for a taxable supply are met.
The ATO has developed a GST property decision tool (access it here). It says the tool has been designed to assist taxpayers to determine the GST implications for property-related transactions. The tool includes:
– a series of questions to help determine the GST classification of real property transactions
– help that provides guidance and explanations to work through the tool
– links throughout to navigate to additional information
– provision of a GST decision of how GST applies to the particular property transaction.
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