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Ruling

Subject: Goods and services tax (GST) and sale of farming business

Question 1

Are you required to issue a tax invoice to the purchaser for the livestock?

Answer

You are required to issue a tax invoice to the purchaser for the supply of a livestock farming going concern. The supply of the livestock formed part of the supply of the livestock farming going concern.

Question 2

If you are required to issue a tax invoice to the purchaser for the livestock, what value do you show on the tax invoice?

Answer

The total price for your supply of the livestock farming going concern should be shown on the tax invoice. The price for the sale of the livestock will form part of the total price shown on the tax invoice for your supply of the livestock farming going concern.

GST is to be calculated on the price of the livestock and the plant, equipment and machinery (other than improvements to the land) that you supplied to the purchaser.

However, GST is not payable on your supply of the livestock farming going concern to the extent of the land that forms part of the supply of this going concern.

The Australian Taxation Office (ATO) cannot advise what part of the total price for the supplies made under the broader arrangement should be apportioned to the livestock.

Question 3

If you are required to issue a tax invoice to the purchaser for the livestock, should the value you show on the tax invoice be the book value?

Answer

The ATO cannot advise on this issue.

Relevant facts and circumstances

You are registered for GST.

You sold a property located in Australia (the property) to the purchaser.

The purchaser is registered for GST.

You carried on a livestock farming business on the property for the period of five years immediately preceding your sale of the property. At the time of sale, the purchaser intended that a farming business would be carried on on the property after sale to it.

The property has various improvements, including a house and garage and agricultural structures.

You used the improvements apart from the house and garage in your livestock farming business.

You sold the plant, equipment and machinery that were used in the livestock farming business to the purchaser.

You sold livestock to the purchaser.

A house existed on the property when you purchased the property. You did not substantially renovate the house. The house does not contain a building that you built.

You leased out the house from a certain date on a (certain length of time) lease that outlives the sale of the property on a certain date. The tenant under that lease was not the farm manager. You transferred the lease to the purchaser.

Based on the information and documents provided, you and the purchaser did not agree in writing that the things you supplied to the purchaser were supplies of going concerns.

There was an option in the written sale contract for the parties to agree that you were supplying a going concern by placing a cross in a box next to the words 'GST-free because the sale is the supply of a going concern under section 38-325'. No mark was inserted into this box.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-30(3)(a)

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 subsection 29-70(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 29-70(2)

A New Tax System (Goods and Services Tax) Act 1999 section 38-325

A New Tax System (Goods and Services Tax) Act 1999 section 38-480

A New Tax System (Goods and Services Tax) Act 1999 section 40-65

Reasons for decisions

Question 1

Summary

You must issue a tax invoice to the purchaser for the supply of the livestock farming going concern as your supply of this going concern is a partly taxable supply and the purchaser has requested a tax invoice for this supply. The supply of the livestock formed part of the supply of the livestock farming going concern.

Detailed reasoning

GST is payable by you where you make a taxable supply.

You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which 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.

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

You satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act, because:

· you supplied various things for consideration

· you supplied these things in the course or furtherance of the livestock farming and property leasing enterprises that you carried on

· these supplies were connected with Australia, and

· you are registered for GST

Your sale of the property to the extent of the residential premises portion meets the requirements of section 40-65 of the GST Act, which provides for input tax treatment for sales of residential premises (subject to certain requirements).

There are no other provisions in the GST Act under which your supplies of the things are input taxed.

Therefore, what remains to be determined is whether you made GST-free supplies.

Going concerns

A sale of a going concern is GST-free if the requirements of subsection 38-325(1) of the GST Act are satisfied.

Subsection 38-325(1) of the GST Act states:

The *supply of a going concern is GST-free if:

(a) the supply is for *consideration; and

(b) the *recipient is *registered or *required to be registered; and

(c) the supplier and the recipient have agreed in writing that the supply is of a going concern.

Subsection 38-325(2) of the GST Act defines 'supply of a going concern'. It states:

A supply of a going concern is a supply under an arrangement under which:

(a) the supplier supplies to the *recipient all of the things that are

necessary for the continued operation of an *enterprise; and

(b) the supplier carries on, or will carry on, the enterprise until the day of the supply'

(whether or not as a part of a larger enterprise carried on by the supplier).

Paragraph 75 of GSTR 2002/5 provides guidance on determining what things are essential for the continued operation of an enterprise. It states:

75. Two elements are essential for the continued operation of an enterprise:

· the assets necessary for the continued operation of the enterprise including, where appropriate, premises, plant and equipment, stock-in-trade and intangible assets such as goodwill, contracts, licences and quotas; and

· the operating structure and process of the enterprise consisting of the commercial or economic activity relevant to the type of enterprise being conducted, for example, ongoing advertising and promotion.

The things necessary for the continued operation of your livestock farming enterprise were:

· the land

· the improvements that were used in the enterprise

· the plant, equipment and machinery that you used in the enterprise, and

· the livestock.

The things necessary for the continued operation of your leasing enterprise were the residential premises and the lease.

You supplied these things to the purchaser. Therefore, the requirement of paragraph 38-325(2)(a) of the GST Act is satisfied.

You carried on the livestock farming enterprise and property leasing enterprise up to the time of sale of these enterprises. Therefore, the requirement of paragraph 38-325(2)(b) of the GST Act is satisfied.

As you satisfied the requirements of subsection 38-325(2) of the GST Act, you supplied going concerns to the purchaser.

You supplied the going concerns for consideration. Therefore, the requirement of paragraph 38-325(1)(a) of the GST Act is satisfied.

The recipient is registered for GST. Therefore, the requirement of paragraph 38-325(1)(b) of the GST Act is satisfied.

You and the purchaser have not agreed in writing that your supply of either going concern was a supply of a going concern. Therefore, the requirement of paragraph 38-325(1)(c) of the GST Act is not satisfied.

As not all of the requirements of subsection 38-325(1) of the GST Act are satisfied, you did not make a GST-free supply of a going concern to the purchaser.

As you did not make a GST-free supply of a going concern under subsection 38-325(1) of the GST Act, the supplies you made to the purchaser were not GST-free under that provision. Therefore, your sales of the livestock and other things to the purchaser were not parts of a GST-free supply under subsection 38-325(1) of the GST Act.

A sale of farmland may be GST-free under section 38-480 of the GST Act, which provides that a sale 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.

In accordance with issue 6.2.1(a) of the Primary Production Industry Partnership - issues register, land includes all fixtures attached to the land. The standard test for determining whether an object is a fixture is whether the object was affixed to the land with the intention of becoming a permanent feature of that land. This would include residential premises, fences, shearing sheds, workers cottages and dams. Since fixtures form part of the land, they will be included in the GST-free supply where the requirements of section 38-480 of the GST Act are met.

You sold a property to the purchaser.

The land is land on which a farming business had been carried on for at least the period of 5 years preceding the supply. Therefore, the requirement of paragraph 38-480(a) of the GST Act is satisfied.

The purchaser intended that a farming business be carried on, on the land. Therefore, the requirement of paragraph 38-480(b) of the GST Act is satisfied.

Hence, you made a GST-free supply of farm land under section 38-480 of the GST Act as all of the requirements of that provision are satisfied. The fixtures on the land, such as the residential premises and certain fixtures form part of that GST-free supply as they form part of the land.

Although your sale of the property to the extent of the residential premises portion meets the requirements for input taxed treatment under section 40-65 of the GST Act, the GST-free status overrides the input taxed status in accordance with paragraph 9-30(3)(a) of the GST Act.

Your sale of the livestock to the purchaser did not form part of the sale of the property because the livestock do not form part of the property as they are chattels and chattels do not form part of land. Therefore, your sale of the livestock is not part of a GST-free supply under section 38-480 of the GST Act.

Your sale of the livestock is not GST-free under any other provision of the GST Act.

As all of the requirements of section 9-5 of the GST Act are satisfied, you made a taxable supply of the livestock. Hence, GST is payable on your sale of the livestock to the purchaser.

Your sales of any other chattels (plant, equipment and machinery other than improvements to the land) are not GST-free under section 38-480 of the GST Act, as they do not form part of the land. These supplies are not GST-free under any other provision of the GST Act.

As all of the requirements of section 9-5 of the GST Act are satisfied, you made taxable supplies of the other chattels to the purchaser. Hence, GST is payable on your sale of these chattels.

Goods and Services Tax Ruling GSTR 2001/8 deals with mixed supplies.

Paragraph 16 of GSTR 2001/8 states:

16. In this Ruling the term 'mixed supply' is used to describe a supply that has to be separated or unbundled as it contains separately identifiable taxable and non-taxable parts that need to be individually recognised.

Paragraphs 25 and 26 of GSTR 2001/8 state:

25. GST is payable on a mixed supply that you make, but only to the extent that the supply is taxable. You need to apportion the consideration for a mixed supply between the taxable and non-taxable parts to find the consideration for the taxable part.

26. Apportionment must be undertaken as a matter of practical commonsense. You can use any reasonable basis to apportion the consideration. Depending on the facts and circumstances of the supply, a direct or indirect method may be an appropriate basis upon which to apportion the consideration and ascertain the value of the taxable part of the supply. The basis you choose must be supportable in the particular circumstances.

Your supply of the livestock farming going concern is a mixed supply. This supply has to be separated or unbundled because it contains separately identifiable taxable and non-taxable parts that need to be individually recognised.

The total price for the supply of the livestock farming going concern must be apportioned between the taxable parts (the livestock and other chattels) and the non-taxable part (the property to the extent of the non-residential portion) on any reasonable basis.

In accordance with paragraph 29 of GSTR 2001/8, the GST component of each taxable part will be 1/11^th of the part of the total price for the supply of the cattle farming going concern that is apportionable to the taxable part.

In accordance with subsection 29-70(2) of the GST Act, as you made a taxable supply to the purchaser and the purchaser has requested a tax invoice for this supply, you must issue a tax invoice to the purchaser.

The tax invoice you issue to the purchaser must show the total price for the supply of the livestock farming going concern and contain information to enable the extent to which this supply is a taxable supply and the total GST on the taxable parts of this supply to be clearly ascertained.

Question 2

The total price for your supply of the livestock farming going concern should be shown on the tax invoice. The price for your sale of the livestock forms part of this total price.

We cannot advise what part of the total price for the supplies made under the broader arrangement should be apportioned to the cattle, as the price for the livestock is a factual matter and the ATO does not rule on factual matters.

Question 3

We cannot advise what part of the total price for the supplies made under the broader arrangement should be apportioned to the livestock, as the price for the livestock is a factual matter and the ATO does not rule on factual matters.

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