Edited version of private advice

Authorisation Number: 1051990791177

Date of advice: 6 June 2022

Ruling

Subject: Is land sale a taxable supply

Question

Are you making a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 for the sale of your property located at xxxx?

Answer

No.

This ruling applies for the following period:

1 July 202XX - 30 June 20XX

The scheme commences on:

17 May 20XX

Relevant facts and circumstances

XX XX and XX XX (collectively referred to as 'You') are not registered for GST either as individuals or as a partnership.

You own property located at a specified location (the Property).

You acquired the Property in xxxx.

You purchased the Property following discussions with your father that the purchase of property would be a preferable investment to having your savings in a bank account.

You did not borrow funds to purchase the Property. The purchase of the Property was funded through existing savings.

You purchased the Property from xx & xx xxx (the xxx) following the subdivision of their property.

The Property is approximately xx hectares of vacant land.

You do not reside on the Property.

You entered into a verbal arrangement with the xxx whereby the xxx crop the Property under a farm sharing arrangement.

You do not have any experience in farming or primary production and are not involved in the activities carried out on the Property. The xxx carry out all primary production activities on the Property.

Depending on circumstances, such as weather conditions, cropping of the land may occur once a year although in some years the Property may not be cropped at all.

Your original motive for engaging in the share farming arrangement was as a method to control the vegetation (weeds). Furthermore, the cropping satisfies the Environment Program as administered by the relevant Council allowing for a reduction in Council rates payable. The program policy is primarily designed to contain the spread of noxious and environmental weeds, and the prevention of the land being a fire hazard as the Property is in an area prone to bush fires.

Proceeds from the sales of crops are distributed as follows:

o   xx xx - xx%

o   xx xx - xx%

o   xxx - xx%

Typically, your share of the proceeds is less than $xxxx per annum.

Until approximately 2000, produce was sold to organisations including xxxx and xxxx. Proceeds from the sales of any produce to such organisations were received directly from the relevant organisations in the ratios detailed above.

However, since that time, proceeds from the sale of produce have been received directly from the xxx. It is your understanding that produce from the Property has been sold to local farmers with proceeds used to pay for consumables such as fertiliser and pesticides. Any remaining funds are distributed to you by the xxx in the proportions detailed above.

There is no business plan or records in place and your share of any produce sold is taken at the xxx word.

The primary production activities have never generated a profit with your motive of holding the Property purely as a form of investment.

On x^nd xxxx xxx you stated that xxx did not receive any income from the proceeds in the last financial year.

xx xx derives income as salary and wage employees and investments in the form of dividends and interest.

xx xx has retired since the previous ruling was issued.

You, either as individuals or as a partnership, do not carry on any other business or enterprise.

The property was sold since the previous private ruling to a separate party for $x,xxx,xxx.

This amount is being paid in instalments, with the first 3 instalments paying as deposits

•         $xxx,xxx within xx days of the sale.

•         $xxx,xxx payable xx months (xx^th xxx xxxx) from the day of sale.

•         $xxx,xxx payable xx months (xx^th xxx xxxx) from day of sale.

The final amount will be the balance of $x,xxx,xxx to be paid at Settlement, xx months (xx^th xxx xxxx) after the sale.

You have not made any applications to relevant authorities in regard to the subdivision or development of the Property.

You have not subdivided the Property.

You have not conducted any works on the Property.

You have stated there is no further new information to be disclosed since the previous ruling.

Relevant legislative provisions

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

Section 9-5

Section 9-20

Section 9-40

Section 23-5

Reasons for decision

Section 9-40 provides that you are liable for GST on any taxable supplies that you make.

Section 9-5 provides 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 for GST.

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

Of relevance is whether you are making a supply of the Property in the course or furtherance of an enterprise that you carry on and if you are required to be registered for GST.

Enterprise

Section 9-20 provides that the term 'enterprise' includes, among other things, an activity or series of activities done 'in the form of a business'.

The phrase 'carry on' in the context of an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

Miscellaneous Taxation Ruling MT 2006/1 (MT 2006/1) provides the Tax Office view on the meaning of 'enterprise' for the purposes of entitlement to an Australian Business Number (ABN). Goods and Services Tax Determination GSTD 2006/6 provides that the discussion in MT 2006/1 equally applies to the term 'enterprise' as used in the GST Act and can be relied on for GST purposes.

In the form of a business

Paragraphs 170 to 179 of MT 2006/1 discuss factors to consider when determining whether an activity or series of activities are done in the form of a business. Paragraph 178 of MT 2006/1, with reference to Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production?, lists indicators of carrying on a business:

•         a significant commercial activity;

•         a purpose and intention of the taxpayer to engage in commercial activity;

•         an intention to make a profit from the activity;

•         the activity is or will be profitable;

•         the recurrent or regular nature of the activity;

•         the activity is carried on in a similar manner to that of other businesses in the same or similar trade;

•         activity is systematic, organised and carried on in a businesslike manner and records are kept;

•         the activities are of a reasonable size and scale;

•         a business plan exists;

•         commercial sales of product; and

•         the entity has relevant knowledge or skill.

Paragraph 179 of MT 2006/1 states that there is no single test to determine whether a business is being carried on. Whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing all the relevant indicators.

Paragraph 16 of TR 97/11 discusses that the indicators must be considered in combination and as a whole. Whether a business is being carried on depends on the 'large or general impression gained' from looking at all the indicators, and whether these factors provide the operations with a 'commercial flavour'. Paragraph 17 of TR 97/11 further states that subject to all the circumstances of a case, where an overall profit motive appears absent and the activity does not look like it will ever produce a profit, it is unlikely that the activity will amount to a business.

Application to your situation

Given the facts of this case, we consider that your activities are not of the level required to fall within the scope of being done 'in the form of a business'.

Furthermore, the definition of the term 'enterprise' excludes an activity or series of activities done by an individual or a partnership (where all or most of the partners are individuals) without a reasonable expectation of profit or gain.

In this case, an examination of the facts concludes that the activities conducted on the Property were done without a reasonable expectation of profit with such activities done primarily to maintain the Property in reasonable condition.

Given the above, we do not consider your activities to constitute an 'enterprise' for the purposes of GST. Rather, they are activities undertaken in order to control the vegetation (weeds) and to satisfy the Environment Program as administered by the Relevant Council allowing for a reduction in Council rates payable.

GST registration

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 (currently $75,000).

As discussed above, it is considered that your activities and the subsequent sale of the Property do not constitute an 'enterprise' for GST purposes. As such, you are not required to register for GST.

Also, of note is that the GST legislation specifically excludes certain supplies made when working out your projected GST turnover. This includes any supply made, or likely to be made, by way of transfer of ownership of a capital asset.

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. '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.

In summary, if an entity is not registered for GST, the proceeds from the sale of a capital asset is excluded from the calculation of the projected GST turnover and the sale will not require the entity to register for GST.