Edited version of your private ruling

Authorisation Number: 1012503240300

Ruling

Subject: GST and the sale of farmland under the administration of a deceased estate

Question 1

Is the entity, an executor of a deceased estate, making a GST-free supply under section 38-480 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it sells farmland where there has been a break in farming activities preceding the sale due to the winding up of the deceased's estate?

Answer

Yes, the entity is making a GST-free supply under section 38-480 of the GST Act when it sells farmland where there has been a break in farming activities preceding the sale due to the winding up of the deceased's estate.

Relevant facts and circumstances

You are registered for goods and services tax (GST).

You are an executor of a deceased estate.

The farming property is an asset of the estate.

The deceased conducted a primary production business on the property for a period in excess of five years before his death.

Farming activities continued on the property after the date of death until in winding up the estate, arrangements were made to sell the stock and list the property for sale.

Due to a claim against the will of the deceased, initially probate could not be granted. The executor obtained an administration order from a court to enable estate administration to proceed.

Estate properties were subsequently listed for sale.

Due to estate administration in winding up the estate, there has been a break in the farming activities from when the livestock was sold (although there has been expenditure on the property involving bore repairs and weed control since the sale of the livestock).

Despite other listed estate farm land selling and the executor continuously seeking a sale, the sale of this property has been severely delayed. Genuine efforts were made to sell the property, including auctions and a reduction in the sale price. Unfavourable economic conditions since the date of death and reduced demand for properties in the region have contributed to the property remaining unsold.

Due to these circumstances there has been a break in farming activities and the property was not sold two years from the date of death.

The purchaser of the property intends to carry on a farming business on the land.

Relevant legislative provisions

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

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

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

Reasons for decision

Section 38-480 of the GST Act provides 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.

In this case, the purchaser intends to carry on a farming business upon the land. Therefore, it must be determined if a farming business has been carried on for at least the period of five years immediately preceding the supply where there has been a break in the farming activities due to the winding up of the deceased's estate.

The term 'farming business' is to be distinguished from the term 'farming activity'. A farming business includes farming activities such as fencing and tending stock. It also includes business activities such as keeping business records. Sometimes, a temporary cessation in the daily farming activities will occur, for example in the event of poor weather, taking holidays, leaving the land fallow and in this case, winding up of the deceased's estate.

Although the farming activities have ceased during the period of the administration of the estate, it is necessary to determine whether the farming business is still being carried on during this time.

The term 'carried on' is defined in section 195-1 of the GST Act to include doing anything in the course of the commencement or termination of the enterprise.

Enterprise is defined in section 9-20 of the GST Act to include an activity or series of activities done in the form of a business. A farming business satisfies this definition. Therefore, a farming business is an enterprise within the meaning of the GST Act. As such, anything done in the course of the commencement or termination of a farming business, where carried out in a business like way, without unnecessary delay, is accepted as being part of carrying on the farming business.

However, it must be considered whether the duties of winding up the deceased's estate are still part of carrying on the farming business where the duties are carried out by an executor as opposed to the farmer.

Taxation Ruling IT 2622 provides guidance on income tax and present entitlement during the stages of administration of deceased estates. Paragraph 2 of IT 2622 explains that upon the death of a person, the property of the deceased passes to their estate, the legal control over which is exercised by an executor or an administrator. The executor or administrator, in effect, steps into the shoes of the deceased and winds up the deceased's personal affairs.

Therefore, it is considered that the winding up of a farming business, whether performed by the business operator themselves, or by an executor or administrator upon the death of the business operator, will still be part of carrying on the farming business.

Furthermore, it is accepted that the process leading up to the granting of probate and the stages that follow in administering the estate are necessary delays in winding up the deceased's farming business. Accordingly, although the farming activities have ceased following the death of the business operator, it is considered that the farming business is carried on continuously up until the time of sale because activities done in the cessation of a business are considered to be part of carrying on a business.

As such, the farming business is considered to have been carried on continuously for at least the period of five years immediately preceding the supply, regardless of the fact that there has been a temporary cessation in the farming activities due to the winding up of the deceased estate. As a result, all of the requirements of section 38-480 of the GST Act have been met.

Therefore, you are making a GST-free supply under section 38-480 of the GST Act when you sell farmland where there has been a break in farming activities preceding the sale due to the winding up of the deceased's estate.

Further Information

In most cases if the vendor obtains a written statement or warranty from the purchaser stating the intention is that a farming business be carried on, then the vendor will be able to demonstrate that it has made a reasonable enquiry about the purchaser's intention, unless the vendor has reason to believe the information is incorrect.