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Edited version of private advice

Authorisation Number: 1052150874401

Date of advice: 1 August 2023

Ruling

Subject: GST - primary production - farmland

Question

Is GST payable on the supply of the proposed subdivided lot comprising #m2 (Proposed Lot A), located at <address> (the Property), pursuant to section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), where Proposed Lot A is supplied to your associates?

Answer

No.

This ruling applies for the following periods:

DDMMYYYY to DDMMYYYY

The scheme commenced on:

DDMMYYYY

Relevant facts and circumstances

Entity A (You) are a trust.

You have been registered for GST since DDMMYYYY.

Entity B is the corporate trustee of Entity A.

On DDMMYYYY, Entity A acquired the Property (the Property).

From that time, you have carried on a farming business of cultivating vegetables on the land, which are then packed and sold to wholesalers.

The Property contains sheds that are used to process the vegetables and a residential premises that is occupied by two of your beneficiaries, Individual A and Individual B.

The land area of the Property is approximately # hectares.

You own no other property and farming is your only business activity.

On DDMMYYYY, an application was lodged with the Council (the Council) to subdivide the Property into 3 allotments.

•         Potential residential land (Proposed Lot A)

•         Farm land (Proposed Lot B)

•         Existing residential premises (Proposed Lot C)

The Council approved your subdivision application on DDMMYYYY.

You will continue to conduct the activities of the farming business on the Property during the subdivision process.

After subdividing the Property,

You intend to sell Proposed Lot B in the future to a third party, but you are not sure when that will occur.

Relevant legislative provisions

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

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

A New Tax System (Goods and Services Tax) Act 1999 Section 38-475

Income Tax Assessment Act 1936 Section 318

Reasons for decision

Section 9-40 provides that you are liable for GST on any taxable supplies that you make.

Under section 9-5, 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 the indirect tax zone (Australia); and

(d)  you are *registered or *required to be registered for GST.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

The issue in this case is whether your supply of the proposed subdivided lot comprising #m2 (Proposed Lot A) to your associates will be GST-free.

GST-free

Section 38-475 provides that the supply of a freehold interest in *potential residential land is GST-free if:

(a)  the land is subdivided from land on which a *farming business has been *carried on for at least 5 years; and

(b)  the supply is made to an *associate of the supplier of the land without *consideration or for consideration that is less than the *GST-inclusive market value of the supply.

'Potential residential land' is defined under section 195-1 to mean land that is permissible to use for residential purposes, but that does not contain any buildings that are residential premises.

In your case, the Council has approved the development of a single storey residential dwelling on Proposed Lot A. Proposed Lot A does not contain any existing buildings that are residential premises. Accordingly, Proposed Lot A meets the definition of 'potential residential land'.

The term 'farming business' is defined in subsection 38-475(2) as including a business of cultivating or propagating plants, in any physical environment.

In your case, you have carried on a farming business on the Property of commercial cultivation of vegetables since you acquired the Property in YYYY. Proposed Lot A will be subdivided from land on which a farming business has been carried on for at least 5 years, satisfying paragraph 38-475(a).

The term 'associate' is defined in section 195-1 as having the meaning given by section 318 of the Income Tax Assessment Act 1936 (ITAA 1936). An associate of a trustee is defined in paragraph 318(3)(b) of the ITAA 1936 to include a natural person who benefits under the trust.

As Proposed Lot A will be supplied to your beneficiaries Individual C and Individual D for no consideration, paragraph 38-475(b) is also satisfied.

Conclusion

The supply of Proposed Lot A satisfies all the elements of section 38-475 and will be a GST-free supply. Therefore, GST is not payable on the supply under section 9-40.

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