ATO Interpretative Decision
ATO ID 2001/292
Goods and Services Tax
GST and increasing adjustments for supply of farmlandFOI status: may be released
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This ATO ID was amended to clarrify the ATO position.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Does the entity, a horticulturalist, have an increasing adjustment under subsection 135-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when, at the time of purchasing farm land that is GST-free under section 38-480 of the GST Act, it intends to build residential premises on the farm land, and lease those premises to a farm manager?
Decision
Yes, the entity does have an increasing adjustment under subsection 135-5(1) of the GST Act when, at the time of purchasing farm land that is GST-free under section 38-480 of the GST Act, it intends to build residential premises on the farm land, and lease those premises to a farm manager.
Facts
The entity is a horticulturalist. The entity has purchased farm land that was supplied to it as a GST-free supply under section 38-480 of the GST Act.
At the time of purchasing the farm land, the entity intended to build a house on the farm land and then lease it to a farm manager. The lease of the house is an input taxed supply under paragraph 40-35(1)(a) of the GST Act.
The entity is registered for goods and services tax (GST).
Reasons for Decision
Under subsection 135-5(1) of the GST Act, an entity has an increasing adjustment where:
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- the entity is the recipient of a supply of a going concern, or a supply that is GST-free under section 38-480 of the GST Act; and
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- the entity intends that some or all of the supplies made through the enterprise to which the supply relates will be supplies that are neither taxable supplies nor GST-free supplies.
In this case, when the entity purchased the farm land, it became the recipient of a supply that is GST-free under section 38-480 of the GST Act. Accordingly, the first requirement in subsection 135-5(1) of the GST Act is satisfied.
In addition, at the time of purchasing the farm land, the entity intended to build a house on the farm land and lease it to a farm manager. The lease of residential premises by the entity to the farm manager is an input taxed supply under paragraph 40-35(1)(a) of the GST Act. As such, the entity intended that some of the supplies made through the enterprise to which the supply relates, would be supplies that are neither taxable supplies nor GST-free supplies. Therefore, the second requirement in subsection 135-5(1) of the GST Act is also satisfied.
As such, at the time of purchasing the farm land, the entity is required to make an increasing adjustment under subsection 135-5(1) of the GST Act.
'1/10 x Supply price x Proportion of non-creditable use'
where:
'
supply price
means the price of the supply in relation to which the increasing adjustment arises'
and
'
proportion of non-creditable use
is the proportion of all the supplies made through the enterprise that the entity intends will be supplies that are neither taxable supplies nor GST-free supplies, expressed as a percentage worked out on the basis of the prices of those supplies'.]
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
section 38-480
subsection 135-5(1)
subsection 135-5(2)
paragraph 40-35(1)(a)
ATO ID 2001/291
Keywords
Goods & services tax
GST free
GST farm land
Supply of land
GST net amounts & adjustments
Adjustments
GST residential rents
Residential premises
ISSN: 1445-2782