Edited version of your private ruling

Authorisation Number: 1012431798460

Ruling

Subject: GST sale of land

Question 1

Will Goods and Services Tax (GST) be payable on the sale of the block or forested land which are privately held assets not connected to the farming enterprise?

Answer

No, GST will not be payable on the sale of the block or forested land, they are privately held assets for investment purposes and not connected to the farming enterprise.

Relevant facts and circumstances

The Trustee for a deceased person (Estate) applied for a private binding ruling.

· On xx xx (Deceased) died.

· On xx, (You) were appointed as Executor under the Will along with xx (Solicitor) by the Supreme Court.

· Neither the Solicitor nor You are beneficiaries of the estate.

· The assets of the Estate are being sold with the proceeds of sale distributed to the beneficiary, the Trust.

· On the xx the Trust was registered for GST.

· On the death of the Deceased you were given possession of the land by Transmission Application.

· The Transmitted assets included Y large farms, a Z hector block of land located in a rural area and adjoining and heavily forested blocks of land.

· A livestock business was carried out on the large farms by the Deceased and continued by the Estate.

· The Estate sold Z of the properties used for farming; they were classified as a GST-free sale of farm land. The third farm known as 'xx is still on the market.

· The other non-farming land consists of:

1. The Z hector block which was acquired as Crown land in 19xx, was designated for a rural and residence (block). This land was not used for residential purposes it was never used by the Deceased in relation to any enterprise. To the best of your knowledge, the Deceased acquired the Block from the Crown with the intention of using it as their residence as they did not own the house in which they lived

You explained:

The` Block' has never had a residence or a building on it and it is zoned residential. You presume it was bought with the intention of someday building a residence for the Deceased, but this never eventuated. It was never used as part of any commercial enterprise, nor was the land used for agistment purposes. It remained vacant land the whole period of the Deceased's ownership.

2. Z heavily forested blocks acquired in 19xx which are V hector in size (Forested land) were never used by the Deceased or the estate for any business purpose. The area adjoins a national park and was not suitable for farming. The reason for the purchase of this land is not known.

You explained:

The Forested land is zoned rural and was not included in the Deceased's farming enterprise. It is presumed that the land was purchased and held for conservation reasons and the pleasure and enjoyment of the Deceased.

· Both the block and Forested land were acquired prior to the introduction of GST, you contend there were no input tax credits claimed when they were acquired.

· All land held at the date of death and passing to the estate had been held for many years. The block was acquired in 19xx and the Forested land on xx was acquired in 19xx. The Block was acquired before any of the farm land and the Forested land was acquired the same year as the one remaining farm block known as xx.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

A New Tax System (Goods and Services Tax) Act 1999 Section 9-20

A New Tax System (Goods and Services Tax) Act 1999 Division 139

Reasons for decision

According to section 7-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), GST is payable on taxable supplies.

Section 9-5 of the GST Act defines taxable supplies, it states:

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 or *required to be registered.

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

* To find definitions of asterisked terms, see the Dictionary, starting at section 195-1.

All of the above conditions must be satisfied in order for the supply to be taxable.

In selling the Deceased's assets to distribute the proceeds to the beneficiaries, the supply of the Deceased's assets will be for consideration, the property is located in a state which is connected to Australia and you are registered for GST.

Therefore, sale of the Deceased's property made by you will satisfy the following positive limbs of Section 9-5 of the GST Act, being section 9-5(a), (c) and (d).

The remaining issue to consider is if the sale of assets is in the course or furtherance of an enterprise and if that supply is GST-free or input taxed.

Enterprise

The definition of an enterprise in section 9-20 of the GST Act includes (amongst other things) an activity or series of activities, done:

§ in the form of a business

§ in the form of an adventure or concern in the nature of trade, or

§ on a regular or continuous basis, in the form of a lease, license or other grant of an interest in property.

The meaning of enterprise is considered in Miscellaneous Taxation Ruling MT 2006/1: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number, and Goods and Services Tax Determination GSTD 2006/6: does MT2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the GST Act.

Paragraph 10 of GSTD 2006/6 provides that 'an activity or series of activities' means any act or series of acts that an entity does. The acts can range from a single act or undertaking, to groups of related activities, to the entire operations of the entity. Therefore, an enterprise can incorporate a single or one-off transaction such as the acquisition, subdivision and sale of real property.

The term business ordinarily would encompass a trade that is engaged in, on a regular or continuous basis, while an adventure or concern in the nature of trade may be an isolated or one-off transaction and includes a commercial activity that does not amount to a business but which has the characteristics of a business deal.

Paragraphs 258 to 260 of MT 2006/1 provide that certain type of assets, such as rental properties, business plant and machinery, the family home, family cars and other assets are considered as investment assets. These assets are purchased with the intention of being held for a reasonable period of time, as income-producing assets or for the pleasure or enjoyment of the person. The mere disposal of these investment and private assets does not amount to trade.

Assets can change their character from investment to trade, however these assets cannot be held at the same time for both purposes. Where a property that was not acquired for resale at a profit later becomes the part of your farming business assets it is necessary to consider whether the activities have a commercial flavour and whether the nature of the asset changes to one of trade.

From the facts presented, the Block and Forested land were not acquired for use in the farming enterprise or any other enterprise. The Block was acquired in 19xx and the Forested land was acquired in 19xx.

On balance, we consider the activities carried out on this land did not have a commercial flavour. The land was not been used in the business or trade. The Block and Forested land were always held for the Deceased's pleasure or enjoyment, both were long term investments. The Block and Forested land and the character or use of the land did not change over time. Therefore, the Block and Forested land is not connected to the livestock farming enterprise.

Where one of the conditions of 9-5 of the GST Act is not satisfied the supply can not be classified as a taxable supply. Therefore, it is not necessary to consider the classification of GST-free or input taxed supplies under Section 9-5 of the GST Act.

Therefore, the sale of the Deceased's property made by you will not satisfy the conditions of a taxable supply under section 9-5(b) of the GST Act and will not be subject to GST.

Other relevant comments

Distribution from Deceased estate

Furthermore, Division 139 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) contains the special rules for distributions from deceased estates.

Section 139-1 of the GST Act explains that distributions from deceased estates for private consumption that are not taxable supplies may involve disposing of assets that were acquired or imported in circumstances which gave rise to input tax credits.

Division 139 of the GST Act provides for an increasing adjustment to cancel such input tax credits.

In this case, we considered if the sale of the Block or Forested land requires the executor to make a Division 139 increasing adjustment.

From the facts the Block and Forested land were acquired prior to the introduction of GST, the acquisition was not subject to GST legislation, and no input tax credits were claimed.

We consider that Division 139 of the GST Act, which would normally require the executor to make an increasing adjustment to recover the GST for the input tax credits claimed where they were related to the livestock farming enterprise, does not apply to the Block or Forested Land.