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Ruling

Subject: goods and services tax (GST) and sale of farm land

Question

Will GST be payable on your sale of the property?

Answer

No.

Relevant facts and circumstances

Our records show that the partnership (you) has been registered for GST since a certain date.

You purchased a property located in Australia (the property) a number of years ago.

The sale of the property to you was GST-free because you signed an agreement stating that you would carry on a farming business on the property.

You have been carrying on a particular type of farming business on the property ever since you purchased the property. You do not carry on any other type of farming business.

A house existed on the property when you purchased it. This house still exists on the property. The partners live in the house.

You will sell the property. You will not sell the farming business.

You will cease your farming business when you sell the property.

You will have carried on a particular type of farming business on the property for the period of at least 5 years immediately preceding the sale of the property.

You do not know if the purchaser will intend that a farming business will be carried on at the property after sale as you have not found a purchaser yet.

You will cancel your GST registration before you sell the property.

Your turnover from the farming business is less than $75,000 a year.

You do not carry on any enterprise other than the farming business.

You do not plan to carry on any enterprise in the month of settlement of sale of the property or in the 11 months following that month other than the farming business.

You are not a member of a GST group.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

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 11-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-20

A New Tax System (Goods and Services Tax) Act 1999 section 11-25

A New Tax System (Goods and Services Tax) Act 1999 section 23-5

A New Tax System (Goods and Services Tax) Act 1999 paragraph 23-15(1)(b)

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

A New Tax System (Goods and Services Tax) Act 1999 Division 129

A New Tax System (Goods and Services Tax) Act 1999 subsection 129-20(3)

A New Tax System (Goods and Services Tax) Act 1999 section 135-5

A New Tax System (Goods and Services Tax) Act 1999 section 135-10

A New Tax System (Goods and Services Tax) Act 1999 section 138-5

A New Tax System (Goods and Services Tax) Act 1999 section 138-10

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-10(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-15(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-20(1)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 188-25(a)

A New Tax System (Goods and Services Tax) Act 1999 subparagraph 188-25(b)(i)

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision

Summary

GST will not be payable on your sale of the property because you will not be registered or required to be registered for GST when you sell the property.

Detailed reasoning

GST is payable by you where you make a taxable supply.

You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states:

You make a taxable supply if:

· you make the supply for *consideration; and

· the supply is made in the course or furtherance of an *enterprise that

· you *carry on; and

· the supply is *connected with Australia; and

· 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.

(*Denotes a term defined in section 195-1 of the GST Act)

You will satisfy the requirements of paragraphs 9-5(a) and 9-5(c) of the GST Act, because:

· you will supply the property for consideration, and

· the supply will be connected with Australia, as the property is located in Australia.

In accordance with section 195-1 of the GST Act, carrying on an enterprise includes doing anything in the course of the termination of an enterprise. Your sale of the property will be something you do in the course of the termination of your farming enterprise. Hence, you will supply the property in the course or furtherance of the farming enterprise that you carry on. Therefore, you will satisfy the requirement of paragraph 9-5(b) of the GST Act.

You will not be registered for GST when you sell the property.

We shall now consider whether you will be required to be registered for GST when you sell the property.

In accordance with section 23-5 of the GST Act, an entity is required to be registered for GST if:

· it is carrying on an enterprise, and

· its GST turnover meets the registration turnover threshold of $75,000.

You will be carrying on an enterprise when you sell the property. Therefore, you will satisfy the requirement of paragraph 23-5(a) of the GST Act when you sell the property.

GST turnover

Subsection 188-10(1) of the GST Act states:

You have a GST turnover that meets a particular *turnover threshold if:

(a) your *current GST turnover is at or above the turnover threshold, and

the Commissioner is not satisfied that your *projected GST turnover is

below the turnover threshold; or

(b) your projected GST turnover is at or above the turnover threshold.

Current GST turnover is calculated in accordance with subsection 188-15(1) of the GST Act, which states:

Your current GST turnover at a time during a particular month is the sum of

the *values of all the supplies that you have made, or are likely to make,

during the 12 months ending at the end of that month, other than:

(a) supplies that are *input taxed; or

(b) supplies that are not for *consideration (and are not *taxable supplies

under section 72-5); or

(c) supplies that are not made in connection with an *enterprise that you

*carry on.

Projected GST turnover is calculated in accordance with subsection 188-20(1) of the GST Act, which states:

Your projected GST turnover at a time during a particular month is the sum of

the *values of all the supplies that you have made, or are likely to make, during that month and the next 11 months, other than:

(a) supplies that are *input taxed; or

(b) supplies that are not for *consideration (and are not *taxable supplies

under section 72-5); or

(c) supplies that are not made in connection with an *enterprise that you

*carry on.

In accordance with paragraph 188-25(a) of the GST Act, sales of capital assets are excluded from the calculation of projected GST turnover.

In accordance with subparagraph 188-25(b)(i) of the GST Act, any supply made by an entity solely as a consequence of the entity ceasing to carry on an enterprise is excluded from the calculation of projected GST turnover.

Paragraph 32 of Goods and Services Tax Ruling GSTR 2001/7 provides guidance on the meaning of capital assets. It states:

32. 'Capital assets' can include tangible assets such as your factory, shop or office, your land on which they stand, fixtures and fittings, plant, furniture, machinery and motor vehicles that are retained by you to produce income. 'Capital assets' can also include intangible assets, such as your goodwill.

In accordance with paragraphs 53 to 57 of GSTR 2001/7, where an entity sells a capital asset in the course of the termination of an enterprise, the sale of the capital asset will be a supply made solely as a consequence of ceasing to carry on the enterprise.

Your sale of the property will be the sale of a capital asset, as you retained the property to produce income from farming it.

Furthermore, your sale of the property will be a supply you make solely as a consequence of ceasing to carry on your farming enterprise as it will be a supply of a capital asset in the course of the termination of this enterprise.

Therefore, your sale of the property will be excluded from the calculation of your projected GST turnover.

You advised that your turnover from the farming business is less than $75,000 a year.

You do not plan to carry on any enterprise in the month of settlement of sale of the property or in the 11 months following that month other than the farming business.

Based on the information provided, your projected GST turnover will be under $75,000 when you sell the property. Hence, your GST turnover will not meet the registration turnover threshold. Therefore, you will not satisfy the requirement of paragraph 23-5(b) of the GST Act.

As you will not satisfy all of the requirements of section 23-5 of the GST Act, you will not be required to be registered for GST when you sell the property.

As you will not be registered or required to be registered for GST when you sell the property, you will not satisfy the requirement of paragraph 9-5(d) of the GST Act.

As you will not satisfy all of the requirements of section 9-5 of the GST Act, you will not make a taxable supply of the property when you sell it. Therefore, GST will not be payable by you on your sale of the property.

GST-free sales of farmland

In accordance with section 38-480 of the GST Act, a sale of farmland 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 purchaser intends that a farming business be carried on, on the land.

A farming business will be carried on at the property for the period of at least 5 years immediately preceding the supply. Therefore, the requirement of paragraph 38-480(a) of the GST Act will be satisfied.

You have not found a purchaser yet, so you do not know if the purchaser will intend that a farming business will be carried on at the property. Therefore, it cannot be determined at this stage whether the requirement of paragraph 38-480(b) of the GST Act will be satisfied.

Regardless of whether or not your sale of the property will be GST-free under section 38-480 of the GST Act, GST will not be payable on your sale of the property as you will not be registered or required to be registered for GST when you sell the property.

Additional information

As GST will not be payable on your sale of the property, there will not be a GST component of the price for the purchaser to claim back as an input tax credit.

Increasing adjustments

Increasing adjustments under subsection 135-10(1) of the GST Act

Where an entity purchases farm land and the sale of the farm land to the entity is GST-free under section 38-480 of the GST Act and the entity subsequently makes a non-taxable non-GST-free sale of the property, the entity may have an increasing adjustment under subsection 135-10(1) of the GST Act.

An increasing adjustment increases the net GST amount payable by a taxpayer to the Australian Taxation Office.

Farm land was sold to you and this sale was GST-free under section 38-480 of the GST Act. Additionally, you will make a non-taxable sale of the property and this sale may not be GST-free. However because your concluding tax period will be your final adjustment period, and you will sell the property after the end of your concluding tax period, your sale of the property will not result in such an adjustment.

Increasing adjustments under subsection 138-5(1) of the GST Act

Where a taxpayer cancels their GST registration and immediately before the cancellation takes effect, the taxpayer holds an asset in respect of which they were or are entitled to an input tax credit, the taxpayer may be required to make an increasing adjustment under subsection 138-5(1) of the GST Act. Such increasing adjustments involve repaying the input tax credit claimed/claimable on the purchase or part of that input tax credit.

Such increasing adjustments are reportable in the activity statement for the concluding tax period.

Increasing adjustments form part of the label 1A figure of the activity statement (provided that there are no decreasing adjustments to offset against the increasing adjustments).

You will not have an increasing adjustment under subsection 138-5(1) of the GST Act in relation to your purchase of the property because you were not entitled to an input tax credit on your purchase of the property.

However, you may have increasing adjustments under subsection 138-5(1) of the GST Act in relation to improvements you made (if any) to the property if you were or are entitled to input tax credits on these improvements. You may also have such adjustments in relation to other business assets that you hold immediately before the cancellation takes effect if you were or are entitled to input tax credits for these assets. This is subject to the time limits in subsection 129-20(3) of the GST Act. See fact sheet, Leaving the GST system, enclosed for guidance on this issue.