GST issues registers

Property and construction

Section 06 - farm land

(a) added, (u) updated, (w) withdrawn

6.1 Sale of farm land

6.1.1 You own a five acre property. On three acres of the property, you have been carrying on a farming business for the last 5 years. On the other two acres is a house which you have been using as your private residence and does not form part of a profit-making activity carried out by you. You are registered for GST for the farming business. You are selling the property to a buyer who does not intend to use the property for carrying on a farming business.

For source of ATO view, refer to:

•

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

•

GSTR 2001/8 - Goods and services tax: apportioning the consideration for a supply that includes taxable and non-taxable parts

•

GSTR 2006/8 - Goods and services tax: the margin scheme for supplies of real property acquired on or after 1 July 2000.

(a) Does GST apply to the sale of the property? (b) Can the margin scheme apply to the sale of the entire property or only that part used for the farming business?

ATO position

1. Yes, but only to that part of the property used for the farming business. This is because the sale of the property is a mixed supply comprising a taxable part and a non-taxable part (for more information about mixed supplies, see GSTR 2001/8). The taxable part of the sale relates to the farm land (the three acres). The non-taxable part is in relation to that part of the property used as a private residence (the two acres). The sale of a private residence that is not part of a profit-making activity is not a supply made in the course or furtherance of an enterprise (paragraph 13 of GSTD 2006/6) and is therefore not a taxable supply under section 9-5 of the GST Act. To work out the GST payable on the taxable part of the sale, the sale price will need to be apportioned between the taxable part and the non-taxable part. GSTR 2001/8 provides guidance on how the apportionment may be done.

(Note: The sale of the entire property may be GST-free under section 38-480 of the GST Act if the buyer had intended to carry out a farming business on the property. For more information about the application of section 38-480 of the GST Act, see issue 6.2.23 in the Primary Production Industry partnership issues register.)

2. If a supply of real property is a mixed supply, the margin scheme can apply to the taxable part. In the example above, the margin scheme can be used to calculate the GST on the taxable part of the sale, that is, the farmland.

Where the margin for the supply is calculated under subsection 75-10(2) of the GST Act, the margin for the supply is the difference between the consideration for the supply and the consideration for its acquisition. For mixed supplies, the consideration for the supply and the consideration for the acquisition are the amounts of the consideration that relate to the taxable part of the supply.

If the margin for the supply is calculated under subsection 75-10(3) of the GST Act, then it is the difference between that part of the sale price that relates to the three acres of farmland and a valuation of the farmland at the relevant valuation date.

(For more information about the margin scheme, please see Property and Construction Industry Partnership - section 15 - sale of real property).

6.2 Lease of farm land (other than long-term leases or a lease by an Australian Government Agency)

6.2.1 You lease to a farmer a rural property with a residential dwelling. In working out the GST payable, does the rent need to be apportioned between the land and the dwelling?

For source of ATO view, refer to paragraphs 92 to 118 of GSTR 2001/8 - Goods and services tax: apportioning the consideration for a supply that includes taxable and non-taxable parts.

ATO position

Assuming that you are required to be registered, the property is in Australia, the lease is made in the course or furtherance of an enterprise and the lease is made for consideration, the supply will be a taxable supply to the extent that it is not input taxed or GST-free (section 9-5 of the GST Act).

The supply of the residential dwelling by way of lease is an input taxed supply to the extent that the premises are to be used predominantly for residential accommodation (section 40-35 of the GST Act).

Because the supply of the property is partly a taxable supply and partly an input taxed supply (that is, a mixed supply), you will need to apportion the consideration for the lease to work out the GST payable on the supply. For more information on how to apportion the consideration and how to work out the GST payable on the taxable part of a mixed supply, see paragraphs 92 to 118 of GSTR 2001/8.

6.3 Subdivision of farm land

For source of the ATO view, refer to issue 6.2.1(a) of the Primary Production Industry Partnership issues register.

ATO position

This issue has been moved to issue 6.2.1(a) in Primary Production Industry Partnership issues register

6.3.1 What are the GST consequences when a tenant attaches a fixture to farmland?

For source of ATO view, refer to issue 6.5.2 of the Primary Production Industry Partnership issues register.

ATO position

This issue has been moved to issue 6.2.1(a) in Primary Production Industry Partnership issues register

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