Edited version of private advice

Authorisation Number: 1051587758651

Date of advice: 1 October 2019

Ruling

Subject: Goods and services tax (GST) and the supplies of properties for farming

Question 1

Is the sale of a Property by you to the Purchaser a GST-free supply of farmland under section 38-480 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No. Your supply of the Property willnot be a taxable supply as you do not satisfy the requirement of paragraph 9-5(d) of the GST Act and therefore the sale of the Property will not be subject to GST.

Are you required to register for GST when you sell the Property?

Answer

No, you are not required to be registered for GST when you sell the Property as you will not satisfy all the requirements of section 23-5 of the GST Act.

Relevant facts and circumstances

You are an individual who owns a Property in Australia.

An Australian company who is registered for GST owns two properties Property A and Property B.

The Australian company carries on a farming business as cattle breeding and fattening for sale across three lots comprising the Property notwithstanding one lot which is owned by you.

The farming business has been carried on the all three properties by the Australian company since at least the year 2000, and prior to that by previous family generations since around 1950.

You never charged a lease or rental fee to the Australian company for the use of your Property to carry out the farming business. The Australian company paid for the expenses such as council rates, rural rates, pasture improvement, fencing and other usual expenses incurred in relation to the Property owned by you.

The Australian Company has claimed GST for the expenses incurred in relation to your Property.

The Australian Company has also claimed income tax deductions in its income tax return for the expenses incurred in relation to your Property.

All three properties now have been sold by you and The Australian Company to the Purchaser in a one contract and awaiting completion of the contact.

The purchaser has stated that it has intention to carry out a farming business being cattle breeding and fattening for sale.

Under the contract for the sale, the total sale price for all the three properties is $X,XXX,XXX.XX.

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 38-480

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-475(2)

A New Tax System (Goods and Services Tax) Act 1999 Section 40-65

Reasons for decisions

GST is payable on a taxable supply. Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), 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, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

From the information provided, you satisfy requirements under paragraphs 9-5(a) and 9-5(c) of the GST Act as the supply that you make is for consideration and the Property is located in Australia, respectively.

Therefore, we need to consider whether:

·         your sale of Property is in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b) of the GST Act), and

·         you are required to be registered for GST (paragraph 9-5(d) of the GST Act).

Are you carrying on an 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. The principles outlined in these rulings have been applied in this case.

Based on the facts provided, you provided your Property to the Australian company to operate its cattle breeding and fattening for sale business since the year 2000. You advised us that you have not charged any rent to the Australian company for using the Property. However you have continuously provided the Property to the Australian company to carry on its enterprise since the year 2000.

Therefore, we consider that you have been carrying on an enterprise of leasing the Property as defined in section 9-20 of the GST Act. Accordingly, the sale of the Property is in the course of your enterprise, and paragraph 9-5(b) of the GST Act is satisfied.

We now need to consider if you are required to be registered for GST.

Are you required to be register for GST?

As you are not registered for GST, it needs to be established whether or not you are required to be registered for GST in relation to the sale of the Property.

Section 23-5 of the GST Act provides that 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. The registration turnover threshold for entities other than non-profit entities is $75,000.

Section 188-10 of the GST Act provides that your GST turnover meets the registration turnover threshold if:

·         your current GST turnover is at or above $75,000 and the Commissioner is not satisfied that your projected GST turnover is below $75,000; or

·         your projected GST turnover is at or above $75,000.

Your current GST turnover is the sum of the values of all supplies made in a particular month plus the previous 11 months. Your projected GST turnover is the sum of the values of all supplies made in a particular month plus the next 11 months.

In calculating current GST turnover and projected GST turnover, the following supplies (amongst others) are not included in the calculation:

·         supplies that are input taxed (which includes financial supplies, residential rent and sale of residential premises)

·         supplies that are not for consideration

·         supplies that are not made in connection with an enterprise that you carry on

·         supplies that are not connected with Australia.

Based on the facts provided, your current GST turnover is nil and therefore, you are not registered for GST. However, the sale of the Property will push your current GST turnover above the registration turnover threshold during the month of sale.

However, even where you have a current GST turnover greater than registration turnover threshold, you will not be required to be registered for GST if the Commissioner is satisfied that your projected GST turnover is below the registration turnover threshold. Thus, we will need to look at whether your projected GST turnover will be below the registration turnover threshold.

Section 188-25 of the GST Act excludes certain supplies made when working out your projected annual turnover. When calculating your projected GST turnover, you do not include any supplies made or likely to be made by you:

·         by way of transfer of ownership of a capital assets of yours; or

·         solely as a result of ceasing an enterprise or substantially and permanently reducing the size or scale of your enterprise.

The meaning of capital assets is discussed in Goods and Services Tax Ruling GSTR 2001/7. Paragraphs 31 and 32 of GSTR 2001/7 state:

31. The GST Act does not define the term 'capital assets'. Generally, the term 'capital assets' refers to those assets that make up 'the profit yielding subject' of an enterprise. They are often referred to as 'structural assets' and may be described as the 'business entity, structure or organisation set up or established for the earning of profits'.

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.

Based on the information provided, we consider that the Property is a capital asset of your leasing enterprise. The sale of your Property constitutes disposals of a capital asset. In addition, your leasing enterprise will cease as a consequence of the disposal of the single asset used in the enterprise. Hence, section 188-25 of the GST Act is applicable and your sale of the Property is not included in the calculation of your projected GST turnover.

As such, the consideration for the sale of the Property is included in the calculation of your current GST turnover but is excluded in the calculation of your projected GST turnover.

Based on the information provided, when you sell the Property, your current GST turnover will be at or above $75,000. However, your projected GST turnover will be below $75,000. Hence, your GST turnover will not meet the registration turnover threshold and you will not be required to be registered for GST. Accordingly, paragraph 9-5(d) of the GST Act is not satisfied.

As all the requirements of section 9-5 of the GST Act are not met, the sale of the Property will not be a taxable supply. There is no need to consider further whether the supply is GST-free or input taxed. Consequently, GST will not be payable on the sale of the Property.