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Edited version of your written advice
Authorisation Number: 1013101305774
Date of advice: 30 September 2016
Ruling
Subject: Sale of Farmland
Question 1
Are you making a taxable supply when you sell your farmland?
Answer 1
No, you are not making a taxable supply when you sell your farmland as you are not registered for goods and services tax (GST) nor are you required to be registered for GST.
Relevant facts and circumstances
You are not registered for GST.
You purchase the land in 19XX.
The land has no dwelling on it.
You operated the land as a farm up until 20YY.
The farmland was then leased to another farmer and is currently still leased to the same farmer.
The payment you receive for the lease is under $75,000 per year.
You have retired and planned to sell your farmland privately.
A purchaser offered to acquire your farmland for over a million dollars.
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 23-5
A New Tax System (Goods and Services Tax) Act 1999 Section 188-10
A New Tax System (Goods and Services Tax) Act 1999 Section 188-15
A New Tax System (Goods and Services Tax) Act 1999 Section 188-20
A New Tax System (Goods and Services Tax) Act 1999 Section 188-25
Reasons for decision
All legislative references in this Ruling, unless otherwise stated are to A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The relevant legislative provisions are discussed below.
Section 9-5 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 you *carry on; and
(c) the supply is *connected with the indirect tax zone; 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.
(* denotes a defined term under section 195-1)
When you sell your farmland, which is currently leased, you will be satisfying paragraphs (a), (b) and (c) in section 9-5. This is because your farmland is located in Australia which is the indirect tax zone and you are making it in the course of your leasing enterprise for a consideration.
Registered or required to be registered for GST
Although you are currently not registered for GST, we have to consider the second part of paragraph (d) in section 9-5 which is whether you will be required to be registered for GST when you sell the farmland.
Section 23-5 provides that you are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold. The registration turnover threshold is $75,000 for entities other than a non-profit body.
Division 188 lists the different GST turnover thresholds and provides whether your GST turnover meets or does not exceed a particular turnover threshold based on the calculation of your current GST turnover and your projected GST turnover.
Section 188-15 provides that your current GST turnover at a time during a particular month is the sum of the values of all the supplies that you made or likely to make during the 12 months ending at the end of that month with certain exclusions.
Section 188-20 provides that your projected GST turnover at a time during a particular month is the sum of the values of all the supplies that you made or likely to make during that month and the next 11 months with certain exclusions.
One of the exclusions in calculating your projected GST turnover is provided under section 188-25 which states that any supply you made or likely to make:
(a) by way of transfer of ownership of a capital asset of yours, and
(b) solely as a consequence of ceasing to carry on an enterprise or substantially and permanently reducing the size or scale of an enterprise.
You advised the consideration you receive for the lease is under $75,000 per year and the prospective sale of your farmland is of over a million dollars. If the sale goes ahead, your total GST turnover will exceed the registration turnover threshold of $75,000. However, as a result of the sale:
• you will transfer the ownership of your capital asset (which is the farmland) to the new owner, and
• your leasing enterprise will cease.
As such, the sale of your farmland will be excluded in the calculation of your projected GST turnover, thereby making your total GST turnover composed mainly of the lease consideration of under $75,000. You are, therefore, not required to be registered for GST because your GST turnover will not meet the GST registration turnover threshold of $75,000.
Consequently, as you are not registered or required to be registered for GST, you are not making a taxable supply when you sell your farmland.