A person is liable to register for GST if his taxable supplies made exceeded S$1m under either the respective test of last full calendar year or the prospective test of next 12 months. Specifically s1C(2) of the First Schedule to the GST Act exclude the supplies of capital assets (either supply of goods or services) made in the course or furtherance of the business (see earlier article on GST registration liability: If you are a Seller, Buyer or Operator of online services dated 13 October 2021, Pitfall: Online Sellers dated 9 November 2020).
It is therefore critical to substantiate that the sale of property is a capital in nature. For companies or persons’ principal business activities in property trading, it is likely that s1C(2) exclusion will not apply.
In the IRAS Advance Ruling in January 2022, an investment holding company is held not liable for GST registration for the sale of a commercial property sold for more than S$1m. The basis for which this Advance Ruling is based on are the following (similar assessment has been discussed in earlier article Capital gains – is it really not taxable? 21 March 2019):
- The commercial property sale was held to be a capital assets under s1(C)(2) based on the following:
- Holding period: The Company has bought and held the property for more than 70 years.
- Intention of the buying and selling the property: The Company used the property to conduct its business since acquisition for 40 years. After it wound down its business operation, it held the property for rental income for 30 years. The Company has classified and accounted for the property as “investment property” in financial accounts. It also has held the property for investment holding and derive rental income since the date of acquisition.
- Frequency of similar transactions: The Company has not sold any other properties.
- The Company does not make any other taxable supplies > S$1m
It may be useful for company not under GST registration with intention to purchase or sell property take early step to examine its transaction at the beginning and take pre-emptive action throughout the holding period of the property.