Edited version of private ruling

Authorisation Number: 1011812620673

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Ruling

Subject: Receivers of an incapacitated entity

Question 1

Are the Receivers required to be registered for GST pursuant to section 58-20 of the A New Tax System (Goods and Services) Act 1999 (GST Act)?

Answer

Yes, the Receivers are required to be registered for GST pursuant to section 58-20 of the GST Act.

Question 2

Are the supplies of the Lots by the Receivers GST-free pursuant to section 38-480 of the GST Act?

Answer

Yes, the supplies of the Lots by the Receivers are GST-free pursuant to section 38-480 of the GST Act.

Facts and circumstances

The sale of land includes 3 Lots referred to as the Lots or the Land.

Prior to the sales, the Land was owned by the Mortgagor and mortgaged to a Bank.

The Mortgagor has been registered for GST since 1 July 2000.

The Receivers were appointed in relation to the Land by the Bank pursuant to a Deed of Appointment of Receivers and Managers.

Under the Deed the Receivers are the agent of the Mortgagor. The Receivers are not the agent of the Mortgagee.

The Receivers engaged real estate agents to market the Land and an auction was held and the Lots were sold to different purchasers.

Under the special conditions of each sales contract, the purchasers were required to notify the Receivers if they intended that a farming business would be carried on, on the relevant Lot after settlement and where this occurred, they acknowledged that the Receivers would rely upon this warranty for the purpose of assessing its GST liability on the sale of each Lot.

The clause provides:

Farming business means a business of:

(i) cultivation or propagating plants, fungi or their products or parts (including seeds, bulbs and similar things), in any physical environment; or

(ii) maintaining animals for the purpose of selling them or their bodily produce (including natural increase), or

(iii) manufacturing dairy produce from raw material that the entity produced, or

(iv) planting or tending trees in a plantation or forest that are intended to be felled.

The Solicitors acted for all the purchases provided facsimiles in relation to each of the Lots confirming that the relevant purchasers intended to carry on farming operations on the property.

The Land has the following improvements:

· old dairy located on one of the Lots.

· storage shed located on another Lot,

· boundary and internal fencing of timber post and barbed wire construction,

· storage shed of 18 square metres with concrete floor, timber frame and metal roof,

· concrete water tank,

· concrete molasses tank,

· concrete water troughs for cattle, and

· small area of Lot 105 and Lot 106 are developed with pine and eucalypt hardwood plantations.

The Mortgagor used the Land for the following purposes:

· operation of a dairy farm business,

· stocking of cattle for beef sales,

· agistment of cattle, and

· plantation of trees.

The commencement and cessation dates in relation to the farming activities as follows:

· the dairy farming business was carried on and was carried on for more than 5 years by the Mortgagor,

· the Mortgagor traded in beef cattle,

· the Receivers indicates that there were 45 cows, 4 bulls, 25 heifers, 25 weaner steers, 25 mixed calves and 1 horse on the property,

· the Mortgagor got into financial difficulty and Receivers were appointed,

· the cattle and other belongings were removed from the Land by the Mortgagor (4 to 6 weeks prior to the Land being sold), to ready the Land for sale as demanded by the Receivers, and

· the sale of the individual Lots was then undertaken and they were sold.

Reasons for decision

Question 1

Summary

The Receivers are required to be registered for GST pursuant to section 58-20 of the GST Act.

Detailed reasoning

Under section 58-20, a representative of an incapacitated entity is required to be registered in that capacity if the incapacitated entity is registered or required to be registered. Note that this section has effect despite what is said in section 23-5 about who is required to be registered. Section 25-1 provides that you must apply, in the approved form, to be registered within 21 days after becoming required to be registered.

When the representative ceases to be a representative of the incapacitated entity, they must notify the Commissioner in an approved form within 21 days after ceasing to be the representative of the incapacitated entity. The Commissioner will then cancel the representative's registration.

The Receivers were appointed in relation to the Land by the Bank pursuant to a Deed of Appointment of Receivers and Managers. The Receivers act for the Mortgagor as agent. Furthermore, the incapacitated entity is registered for GST.

Therefore, the Receivers are required to be registered in the capacity of a representative.

You can send your notifications of appointment and cessation as well as your request for GST registration in the capacity of a representative to the following address:

Australian Taxation Office
PO Box 9003
PENRITH NSW 2740

Question 2

Summary

The supplies of the Lots by the Receivers are GST-free pursuant to section 38-480 of the GST Act. As the Lots were used to carry on a farming business for a period greater than 5 years prior to the supply, and the purchasers intend to carry on a farming business on their relevant Lot.

Detailed reasoning

A supply is taxable were it satisfies section 9-5 of the GST Act. This section provides that:

You make a taxable supply if:

(a) you make a 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.

In this circumstance, the Receivers have sold the Lots for consideration, the supply was connected with Australia, and the Receivers as agent for the incapacitated entity are required to be registered for GST.

It remains to determine if the incapacitated entity is carrying on an enterprise pursuant to paragraph 9-5(b) of the GST Act.

Section 195-1 provides that the carrying on of an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

Therefore, as the incapacitated entity is terminating their enterprise of carry on a farming business regarding the Land the requirement under paragraph 9-5(b) of the GST Act is satisfied. Hence, the supply was made by the Receivers in the course of the incapacitated entities enterprise that was being carried on and will be a taxable supply.

However, the supplies will only be taxable to the extent they are not GST-free or input taxed. There are no provisions that would result in the supplies being input taxed. But consideration needs to be given to whether they are GST-free pursuant to Subdivision 38-O of the GST Act which allows for the supply of farm land to be GST-free in certain circumstances.

In particular section 38-480 of the GST Act provides:

The supply of a freehold interest in, or the lease by an Australian government agency of or the long term lease of, land is GST-free if:

· 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

· the recipient of the supply intends that a farming business be carried on, on the land.

Therefore, for the sale of farm land to be GST-free, the above requirements must be satisfied.

The phrase 'farming business' is defined for the purposes of the GST Act. Subsection 38-475(2) of the GST Act provides:

An entity carries on a farming business if it carries on a business of:

· cultivating or propagating plants, fungi or their products or parts (including seeds, spores, bulbs and similar things), in any physical environment, or

· maintaining animals for the purpose of selling them or their bodily produce (including natural increase), or

· manufacturing dairy produce from raw materials that the entity produced, or

· planting or tending trees in a plantation or forest that are intended to be felled.

The incapacitated entity had been carrying on a business of farming on the Land including operation of a dairy farm business, stocking of cattle for beef sales, agistment of cattle, and plantation of trees.

In this case, the incapacitated entity's activities falls within the definition of 'farming business' in paragraph 38-475(2)(b) of the GST Act. As such, a 'farming business' has been carried on for at least the period of 5 years preceding the supply as per the requirement in paragraph 38-480(a) of the GST Act.

Furthermore, the purchasers have stated they intend to carry on a 'farming operation' their respective Lot and this is supported by the special conditions under the contact that contain the definition of 'farming business' in paragraph 38-475(2)(a) of the GST Act, that the purchasers have signed.

Accordingly, the requirement in paragraph 38-480(b) of the GST Act is also satisfied.

Therefore, as the requirements in section 38-480 of the GST Act are satisfied, the Receiver's are making GST-free supplies of farm land when then supply the Lots.