Edited version of private ruling

Authorisation Number: 1011522240507

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Ruling

Subject: GST and the requirement for registration by an executor of a deceased estate

Questions

1. Are you, the executor of a deceased estate, required to be registered for goods and services tax (GST) under section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in respect of the sale of a property belonging to the deceased estate?

2. If the answer to question one is yes, will the sale of the relevant property be GST-free under section 38-480 of the GST Act.

Decisions

1. No, you will not be required to be registered for GST under section 23-5 of the GST Act in respect of the sale of the relevant property.

2. As you will not be required to be registered for GST, the issue in relation to the application of section 38-480 of the GST Act has not been addressed.

Relevant facts and circumstances

An owner of a rural property recently passed away. He was not registered for GST in his personal capacity.

You are the executor of his deceased estate. You, as the executor of the deceased estate, are not registered for GST.

Prior to 1 July 2000, the land owner formed a partnership to operate his property in conjunction with the properties owned by his family members.

The land owner did not carry on a farming enterprise on his own account.

The land owner owned the property in his personal capacity and the partnership did not have any ownership rights over the property. The title to the property was freehold.

The partnership carried on a farming enterprise on the properties. The partnership was registered for GST.

Contract of sale

Recently, the land owner entered into a contract to sell his property. Similarly his family members entered into contracts to sell their properties to the same purchaser. Soon after entering into the contract, the land owner passed away.

After completion of the contracts, the partners have decided to terminate the partnership.

On completion of the respective contracts, the purchaser will grant to two of the family members a lease on the properties for 10 years for the purposes of farming and residential use. The lessees will continue to carry on the farming enterprise that was formerly carried on by the partnership.

Each contract of sale provides that the vendor and the purchaser agree that the sale of the property is GST-free, because the vendor is neither registered nor required to be registered for GST and that if the vendor is required to be registered for GST, then under section 38-480 of the GST Act, the sale of each property is GST-free as farmland supplied for farming.

Reasons for the decisions

Decision 1

Section 23-5 of the GST Act states:

You are required to be registered under this Act if:

a) you are *carrying on an *enterprise; and

b) your *GST turnover meets the*registration turnover threshold.

Note: It is the entity that carries on the enterprise that is required to be registered and not the enterprise.

(* denotes a term defined in section 195-1 of the GST Act.)

Therefore, it is necessary to determine whether you, as the executor of the deceased estate, carry on an enterprise and satisfy paragraph 23-5(a) of the GST Act.

Carrying on an enterprise

The term enterprise under the GST Act has a wider meaning than business. Subsection 9-20(1) of the GST Act defines what constitute an enterprise and states:

(1) An enterprise is an activity, or series of activities, done:

(a) in the form of a *business; or

(b) in the form of an adventure or concern in the nature of trade; or

(c) on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property; or

(d) …….

Formation of a general law partnership

We consider that the land owner and his family members formed a general law partnership to operate a farming enterprise on their properties.

Goods and Services Tax Ruling GSTR 2003/13 (GSTR 2003/13) refers to general law partnerships. Paragraph 32 - 33 and 35 of GSTR 2003/13 state:

32. Upon formation of a partnership, the partners acquire interests in the partnership. The consideration for those interests can encompass capital contributions and the mutual obligations that each partner undertakes, including promises to provide labour, skills or services in the conduct of the partnership business.

33. Upon a partnership coming into existence, its partners hold interests in the partnership. A partner's interest in the partnership may increase or decrease over the time. A partner's interest is extinguished if the partner exits the partnership, unless the partner sells or assigns their interest to another entity. No interest in the partnership are held once the partnership ceases to exist.

35. For GST purposes, transactions involving the acquisition, disposal or changes in the level of interests held in a partnership are considered in the context of financial supplies.

We consider that the land owner supplied his property to the partnership and acquired an interest in the partnership. Since the formation of the partnership, the land owner did not carry on a faming enterprise on his own account. The farming enterprise was carried on by the partnership.

There can be instances where a partner of a partnership is considered to be carrying on an enterprise. However, in this instance, it is our view that the landowner, as a partner in the partnership, did not carry on an enterprise for GST purposes. They merely provided their property to the partnership and acquired an interest in the partnership.

As you do not carry on a farming enterprise or any other enterprise on your own account, you do not satisfy paragraph 23-5(a) of the GST Act. Accordingly, under section 23-5 of the GST Act, you are not required to be registered for GST.

GST implications on the sale of property to the partnership

In this ruling we have not considered the GST implications that will arise to the partnership, because of the sale of the property belonging to the deceased estate. GSTR 2003/13 provides guidance in this regard. For example, paragraph 132 of GSTR 2003/13 states:

132. Realising business assets as part of winding up a partnership involves the partnership making supplies in the course or furtherance of an enterprise that it carries on. Those supplies are taxable supplies if all the requirements of section 9-5 are satisfied.

Decision 2

Section 9-5 of the GST Act refers to taxable supplies and 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 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.

As explained under decision 1 above, in relation to the sale of the property belonging to the deceased estate, paragraph 9-5(d) of the GST Act will not be satisfied. Therefore, the sale will not meet one of the positive limbs of the definition of a taxable supply. Accordingly, the sale of relevant property will not be a taxable supply.

As it will not be a taxable supply, we have not addressed the issue of whether the sale of the relevant property will be a GST-free supply under section 38-480 of the GST Act.

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