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Ruling

Subject: acquisition of land

Questions:

1. Is the purchase of the land an acquisition of farmland?

2. Is the purchase of the land an acquisition of a taxable supply?

3. If the vendor refuses to issue a tax invoice, how would you be able to claim input tax credit on this acquisition?

Answers:

See below in reasons for the decision.

Relevant facts and circumstances:

· You are an individual and intend to engage in an enterprise of property development.

· You have an Australian business number (ABN) and are registered for the goods and services tax (GST) for this purpose.

· You purchased land, with improvements upon it, with the intention of developing the land.

· The land was purchased for consideration and the vendor is not an associate.

· You entered into a contract of sale with the vendor and the settlement was in February 2011.

· Subsequent to entering into the contract of sale, you had a dispute with the vendor about the interpretation of the contract.

· You state that the vendor maintains that the supply of the land was not a taxable supply and you are of the view that it was.

· You made an application to the Supreme Court of a State to adjudicate on this dispute. However, you withdrew this application and concluded the settlement of the contract.

· You are of the view that the vendor was carrying on an enterprise of farming on the land prior to its sale.

· You are also of the view that the vendor's supply to you was a taxable supply and that you have an entitlement to input tax credit on this acquisition.

· You informed that the vendor's solicitor wrote to confirm that no tax invoice would be issued as the sale was not made in the furtherance of an enterprise and is therefore not subject to GST.

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 29-70

A New Tax System (Goods and Services Tax) Act 1999 section 38-480

Reasons for decision

1. Is the purchase of the land an acquisition of farmland?

Whether or not the supply was that of farmland would depend on the facts of the case. It is the vendor, as the supplier, who would be able to provide the facts to determine this. What we can provide to you, as the purchaser, is general advice of what constitutes the supply of farmland.

Section 38-480 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that:

The supply of a freehold interest in…..land is GST-free if:

(a) 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

(b) the *recipient of the supply intends that a farming business be carried on, on the land.

.

(The asterisked terms are defined in section 195-1 of the GST Act)

Australian Taxation Office (ATO) publication, GST and property, provides information on the correct application of GST when dealing with property sales and transactions. It also refers to sale of farmland. A copy of this publication is enclosed.

2. Is the purchase of the land an acquisition of a taxable supply?

Whether a supply is taxable depends on the facts in relation to the supply. It is the supplier that makes the supply and is in a position to provide the relevant facts relating to the supply. This will be seen from the relevant section of the GST Act on taxable supplies.

Section 9-5 of the GST Act states that:

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 Australia; and

(d) you are *registered, ot *required to be registered.

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

You will observe, for example, that the paragraph (b) above relates to a requirement that only the supplier can provide as a fact. Consequently, it is the supplier who would be able to provide the necessary facts to determine whether or not a particular supply is a taxable supply.

3. If the vendor refuses to issue a tax invoice, how would you be able to claim input tax credit on this acquisition?

Subsection 29-70(2) of the GST Act states that:

The supplier of a *taxable supply must, within 28 days after the *recipient of the supply requests it, give the recipient a *tax invoice for the supply unless it is a *recipient created tax invoice.

In this case, you and the vendor have a dispute regarding the interpretation of the contract of sale you and the vendor entered into and, arising from that, a disagreement in respect of the tax status of the supply.

The ATO can neither interpret the contractual arrangements the parties to a contract had entered into nor adjudicate on that matter. It is a matter for the courts to determine, or a dispute resolution institution to resolve.

Alternatively, if you and the vendor agree on the facts of the case and jointly request for a ruling regarding the GST status of the supply, then the ATO will be able to apply the legislation to those facts and advise both parties.