Disclaimer This edited version will be removed from the Database after 30 September 2025. If you believe the issues detailed in this edited version warrant retention in an alternative form, email publicguidance@ato.gov.au This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private ruling
Authorisation Number: 1011567658643
This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.
Ruling
Subject: GST and sale of farmland
Question:
Are you required to pay goods and services tax (GST) under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in respect of the sale of the share of your property?
Advice/Answer:
No, you are not required to pay GST in respect of the sale of your share of the property.
Relevant facts:
You and another individual were the co-owners of a rural property.
You are registered for GST.
You formed a partnership (partnership) to operate your property in conjunction with the properties owned by some other individuals.
You did not carry on any farming enterprise on your own account.
You owned your property in your 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.
Contract of sale
You entered into a contract to sell your property to another entity (third party) for more than $X which will be payable to you and not the partnership.
The other partners entered into separate contracts to sell their properties to the third party.
After completion of the contracts, the partners have decided to terminate the partnership.
On completion of the respective contracts, the third party will grant to you a lease on the properties for several years for the purpose of farming. The lessees will continue to carry on the farming enterprise that was formerly carried on by the partnership on the properties. It is because of this farming enterprise that you have registered for GST. You did not carry on any farming activities or any other enterprise in your personal capacity or together with the co-owner of the property that you are selling.
The sale of the property has been settled.
Reasons for decision
GST is payable on taxable supplies that you make.
Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) defines a taxable supply as follows:
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.
(terms marked with an asterisk (*) are defined in section 195-1 of the GST Act)
In this case you have sold your share of the property to the third party for consideration (that is the sale price).
You were registered for GST at the time of settlement of the property. And the property is located in Australia and thus is connected with Australia.
The issue that needs to be discussed here is whether you sold the property as a part of an enterprise that you were carrying on.
At the time of settlement of the property you were registered for GST. Therefore, it could be argued that you were carrying on an enterprise. However, what needs to be determined here is whether you disposed of the property in the course of an enterprise that you carried on.
The following is stated in Miscellaneous Tax Ruling MT 2006/1 at paragraph 110.
Partnership
110. As explained in paragraphs 41 to 43 of this Ruling, the definition of partnership is wide and has the meaning given by section 995-1 of the ITAA 1997. Partnerships, except incorporated limited partnerships, are not recognised under the general law as a separate legal person distinct from the members of the partnership. They are an entity for ABN purposes because of the operation of paragraph 184-1(1)(e) of the GST Act. This means that the business the partners carry on in association with each other is taken to be an enterprise carried on by the partnership. As a result, a partner (that is required to carry on an enterprise to be entitled to an ABN), will not be entitled to an ABN unless they carry on some other enterprise independently of the partnership and in their own capacity.
This means that a partner is not considered to be carrying on an enterprise and that it is the partnership that is considered to be carrying on the enterprise.
Formation of a general law partnership
We consider that you and the other individuals formed a general law partnership to operate a farming enterprise (farming enterprise) on your properties.
Goods and Services Tax Ruling 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 interests 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.
By supplying your share of the property to the partnership, you acquired an interest in the partnership.
Since the formation of the partnership, you did not carry on a faming enterprise on your 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 we have not been provided with any information in relation to other dealings that you may have had with other partnerships in providing your assets in the form of a business. On that basis, it is our view that you as a partner in the partnership did not carry on an enterprise for GST purposes in relation to the property that you sold. You merely provided your property to the partnership and acquired an interest in the partnership.
After the dissolution of the partnership, you received your share of the property in your capacity as a partner in the partnership. However, it is also the same property that you entered into a contract with the third party to carry on farming activities for which you have chosen to register for GST. Therefore it could be argued that you were carrying on another enterprise (or were in the process of starting up an enterprise) in relation to the property that you sold.
This means that paragraphs 9-5(a) to 9-5(d) of the GST Act are satisfied.
Therefore, it needs to be determined whether the sale of the property is GST-free or input taxed.
The relevant GST-free provision that needs to be discussed here is section 38-480 of the GST Act which states:
The supply of a freehold interest in, or the lease by an *Australian government agency of or the *long term lease of, land is GST-free if:
(a) the land is land on which a *farming business has been *carried on for at least the period of 5 years preceding the supply; and
(b) the *recipient of the supply intends that a farming business be carried on, on the land.
Farming business has been carried on by the partnership on the relevant land for at least five years preceding the supply of the land. Furthermore, the third party has entered into a leasing agreement with you which allows you to carry on a farming business on the land. Therefore, both of the requirements of section 38-480 of the GST Act are satisfied in this instance. It is the ATO view that farming business can be carried on the land by any entity and not necessarily by the vendor of the property or the recipient. Therefore, the fact that it was the partnership that carried on the farming business and not you does not alter the answer. Consequently, the sale of the property is GST-free under section 38-480 of the GST Act.
Accordingly, you are not required to pay GST on the sale of your share of the property.
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 your property. 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.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).