Edited version of private advice

Authorisation Number: 1051801664367

Date of advice: 3 February 2021

Ruling

Subject: Sale of a vacant property used for farming activities

Question

Is the supply of the vacant land a taxable supply for the purposes of the GST Act?

Answer

No.

This ruling applies for the following periods:

Not applicable

The scheme commences on:

Not applicable

Relevant facts and circumstances

Entity A and B are the joint owners of the property.

Entity A in its capacity as a sole trader operated a farming enterprise using the property.

All the supplies made under the farming operation were made by entity A under its ABN.

Entity A did not have a formal lease in place with the joint owners of the property.

Entity A and B in their capacity as joint owners, did not receive any rent or benefits, other than entity A being able to use the property in respect of its sole trader farming activities.

The farming operations ceased completely in 20XX, due to the encroachment of nearby residential properties and consequently limiting the ability to use pesticides near residential properties.

All business assets in respect of the farming enterprise were disposed of, and no farming enterprise, plant & equipment remained on the property after operations ceased.

The GST registration for entity A was cancelled at the conclusion of the financial year.

The land has since remained vacant and does not have hold any physical property or farming assets. The land continued to be a passive investment for the joint owners throughout the ownership period and did not contain a residential dwelling throughout the period.

The joint owners registered a family partnership and registered for GST.

The purpose of this registration is in respect of their business enterprise of purchasing fruits and vegetables from various independent farmers and delivering and selling these to retail shops.

The ABN and GST registration occurred post the termination of the farming operations by entity A and that this enterprise has no connection to the property.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 - section 9-5, 9-40

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

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

Reasons for decision

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you are liable to pay GST on any taxable supplies you make.

Under section 9-5 of the 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 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.

Entity A and B will be selling the property for consideration, the property is connected with the indirect tax zone (Australia) and they are registered for GST. However, we need to determine whether the sale of the property would be made in the course or furtherance of the enterprise that carry on by entity A and B.

Based on the facts provided entity A and B are carrying on an enterprise of buying and selling fruits and vegetables and the have been registered for GST in relation to this enterprise. They have advised that the property is not used in the enterprise of buying and selling fruits and vegetables.

Sale of farmland

Supplies of farmland will be GST-free under section 38-480 of the GST Act if two requirements are met. The requirements are:

•         the land is land on which a farming business has been carried on for at least five (5) years preceding the supply; and

•         the recipient of the supply intends that a farming business be carried on, on the land.

The sale of the property will not satisfy the above two requirements as the farming activities have been terminated by entity A prior to the sale and therefore, the sale will not be GST-free.

Since the property is not used in the current enterprise, it should be determined whether the sale of the property would be considered as a disposal of capital asset and the proceeds from the sale would be included in the calculation of GST turnover.

Division 188 of the GST Act deals with the meaning of GST turnover and whether it meets a particular turnover threshold. Under section 188-25 of the GST Act, the following will be disregarded when working out your projected annual turnover:

•         Any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours; and

•         Any supply made, or likely to be made, by you solely as a consequence of ceasing to carry on an enterprise or substantially and permanently reducing the size or scale of an enterprise.

The sale of the property could be considered to be the transfer of ownership of a capital asset as sole consequence of substantially and permanently reducing the size of the enterprise carried out by entity A.

Although entity A and B are registered for GST, it is our view that the sale of the property will not be made in the course or furtherance of the enterprise of buying and selling fruits and vegetables carried out by them.

As explained above, the proceeds from the sale of this property is disregarded when calculating the projected annual turnover as per section 188-25 of the GST Act. Therefore, the sale of the property will not be a taxable supply for the purposes of GST and not subjected to GST.