ATO Interpretative Decision
ATO ID 2009/131
Goods and Services Tax
GST and supply of potential residential land subdivided from land on which a farming business was carried on that is not GST-freeFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the entity making a GST-free supply under section 38-475 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when it supplies land that is subdivided from land on which a farming business was carried on for at least 5 years but not up until commencement of the subdivision?
Decision
No. In these circumstances, the entity is not making a GST-free supply under section 38-475 of the GST Act.
Facts
The entity is an owner of land that is 'potential residential land' as defined in section 195-1 of the GST Act. The entity is supplying a freehold interest in the potential residential land to an associate for consideration that is less than the GST inclusive market value of the supply.
The potential residential land is subdivided from land on which the entity carried on a farming business for at least 5 years, but not up until commencement of the subdivision. The entity had ceased the farming business and used the land for non-farming purposes for a period of time before subdividing the land.
The entity is registered for GST and the supply of the land to the associate satisfies the other positive limbs of section 9-5 of the GST Act. The supply is not GST-free or input taxed under any other provision of the GST Act.
Reasons for Decision
Subsection 38-475(1) of the GST Act provides that the supply of a freehold interest in potential residential land is GST-free if:
- (a)
- the land is subdivided from land on which a farming business has been carried on for at least 5 years; and
- (b)
- the supply is made to an associate of the supplier of the land without consideration or for consideration that is less than the GST inclusive market value of the supply.
On the facts, paragraph 38-475(1)(b) of the GST Act is clearly satisfied.
The question is whether paragraph 38-475(1)(a) of the GST Act is satisfied. That is, whether the potential residential land that the entity is supplying to its associate 'is subdivided from land on which a farming business has been carried on for at least 5 years' if the subdivision commenced some time after the entity had ceased the farming business and used the land for non-farming purposes.
The use of the perfect tense in the phrase 'land on which a farming business has been carried on for at least 5 years' and the placement of that phrase next to the words 'is subdivided from' indicate a temporal connection is required between the carrying on of the business and the time of subdividing the land (see note 1 below). This means that to satisfy paragraph 38-475(1)(a) of the GST Act, the potential residential land must be subdivided from land on which a farming business continued to be carried on for at least 5 years up until commencement of the subdivision.
In this case, paragraph 38-475(1)(a) of the GST Act is not satisfied. While the entity carried on a farming business for at least 5 years on the land from which the potential residential land was subdivided, it did not carry on the farming business up until commencement of the subdivision.
Therefore, the supply of the potential residential land by the entity to its associate is not a GST-free supply under section 38-475 of the GST Act.
As section 9-5 of the GST Act is satisfied, and the supply is also not GST-free or input taxed under any other provision of the GST Act, the supply is a taxable supply.
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
section 9-5
section 38-475
subsection 38-475(1)
paragraph 38-475(1)(a)
paragraph 38-475(1)(b)
section 72-70
Other References:
Greenbaum, S 1996, The Oxford English Grammar, Oxford University Press, New York.
Biber, D and others 1999, Longman Grammar of Spoken and Written English, Pearson Education Limited, England.
Huddleston, R 1984, Introduction to the Grammar of English, Cambridge University Press, Cambridge.
Keywords
Farming business
Goods and services tax
GST associates
GST farm land
GST free
Potential residential land
Subdivided farm land
Taxable supply
ISSN: 1445 - 2782