Edited version of private ruling

Authorisation Number: 1011808432952

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Ruling

Subject: GST and surrender of land title

Question

Is the surrender of your right to a title on property to your neighbour a taxable supply?

Answer: Yes.

Relevant facts

You operate a winery on land you own.

The land is currently on 3 titles.

Your neighbour wishes to subdivide his land but cannot do so because no further titles are able to be created in the region.

You are considering converting your land holding back to two titles, and transferring the third to the neighbour.

Your actual land holding will not change, only the legal description on the title.

Your neighbour is offering monetary consideration to enter into this arrangement.

You have already received a ruling from the ATO saying that the transfer of the title will result in CGT event C2 occurring (CGT event C2 happens when the relevant CGT asset is cancelled, surrendered or comes to a similar end).

Reasons for decision

Question

Summary

The transfer of the land title to your neighbour is a taxable supply.

It does not come within the GST free concessions for farmland.

Detailed reasoning

Under section 9-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) a supply includes a creation, grant, transfer, assignment or surrender of any right (9-10(e) GST Act). In the facts you described you are surrendering your right to a title on property. This is therefore a supply.

A supply will be taxable when the supply occurs for consideration, in the course of an enterprise, is connected with Australia and is made by an entity that is registered or required to be registered (section 9-5 GST Act).

In your case the supply is being made for consideration (cash incentive) and is in the course of the winery enterprise that you are running. The land is in Australia and is therefore connected with Australia, and you are registered for GST. All of the requirements for a taxable supply are satisfied. Therefore, unless there are any rules that make the transfer GST-free or input taxed the supply will be taxable.

The transfer is not in relation to residential premises and is therefore not input taxed.

The GST concessions for farmland only apply where subdivided farm land is sold to an associate for residential purposes at less than market value (38-475 GST Act), or where the farm land will be continued to be used for farming (38-480 GST Act).

While the land has been used for farming (a vineyard), and your land will continue to be used for farming (as a vineyard), the surrender is of a right to the title rather than the underlying asset of the land. You are not providing a freehold interest of your farm land to another farming enterprise as is required by the legislation. Therefore this exemption can not apply to you.

The transfer is not otherwise input-taxed or GST free. Therefore the supply of the transfer of the land title will be a taxable supply for GST purposes.

The margin scheme will not apply to this transaction as you are not selling a freehold interest in land. You are surrendering your right to a title over real property without changing your actual land holding. You are not selling your interest in the land, only altering the legal description and surrendering the title.