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Edited version of private advice
Authorisation Number: 1012663686259
Ruling
Subject: GST and sale of a property used in the farming enterprise by the partnership
Question
Is the sale of a property that has been used for farming activities and includes a residential property, taxable supply and subject to the goods and services tax (GST)?
Answer
No, the sale of the property that has been used for farming activities and includes a residential property is not a taxable supply and therefore is not subject to the GST.
Relevant facts and circumstances
• You own a property (farm land) which includes a residential property and you are not registered for goods and services tax (GST)
• Farming activities were carried on this property by your partnership for the past five years. The partnership is registered for GST.
• The income derived from the farming activities were reported by the partnership under their ABN.
• The residential property was rented out by you and the income was reported in your assessable income.
• You do not have a lease agreement with the partnership never received any lease payments from the partnership for the use of the property.
• The property is sold to a property developer and they do not intend to continue the farming activities.
• The residential property will be sold to the property developer together with the farmland and the tenant of the residential property must vacate the premises within 12 months of you signing the agreement with the purchaser.
• The annual turnover of the partnership is less than $75,000 and the income is divided between the two partners and the income from the rental property is also less than $75,000.
• The partnership will continue to carry on their enterprise of farming and leasing properties after the sale of the property.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 - Section 23-5
A New Tax System (Goods and Services Tax) Act 1999 - Section 188-25
Reasons for decision
You are required to be registered under section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold.
Based on the facts provided, you are carrying on an enterprise of leasing a residential property and carrying on farming activities on the land.
We need to determine whether you are required to be registered and whether your GST turnover meets the registration turnover threshold when you sell your farm land.
Currently the registration turnover threshold (unless you are a non-profit body) is $75,000.
Division 188 of the GST Act deals with the meaning of GST turnover and whether it meets a particular turnover threshold. Under section 188-25 of the GST Act, the following will be disregarded when working out your projected annual turnover:
• Any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours; and
• Any supply made, or likely to be made, by you solely as a consequence of ceasing to carry on an enterprise or substantially and permanently reducing the size or scale of an enterprise.
The sale of the farm land could be considered to be the transfer of ownership of a capital asset as sole consequence of substantially and permanently reducing the size of your leasing enterprise. Therefore, the proceeds from the sale of this property is disregarded when calculating the projected annual turnover as per section 188-25 of the GST Act.
Currently, you are not registered for GST and your annual turnover from all the enterprises carried out by you, is less than $75,000. Therefore, you are not required to be registered for GST in relation to the sale of your property used for farming activities which includes a residential property and the sale is not subject to the GST.
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