ATO ID 2005/3: GST and entitlement to register for GST by a grower in an agricultural managed investment scheme
Date of decision: 2 July 2004
Year of income: Year ended 30 June 2004
Business line: Indirect Tax

Issue
Is the entity, an individual participating as a grower in an agricultural managed investment scheme, entitled to register for goods and services tax (GST) under section 23-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when:

Decision
Yes, the entity is entitled to register for GST under section 23-10 of the GST Act as the entity will be carrying on an enterprise with an expectation of profit.

Facts
The entity is an individual. The entity applied for and has been allocated, on a sub-lease basis, a farm lot in an agricultural managed investment scheme. Prior to the formal offer to members of the public to participate in the agricultural scheme, the Tax Office issued an income tax Product Ruling indicating that the specific activities to be conducted by growers covered by the Ruling would be accepted as constituting the carrying on of a business. The entity is a grower covered by that Product Ruling. Immediately prior to becoming a participant in the scheme, the entity was not registered for GST. On being accepted into the scheme, the entity does not necessarily expect to have any turnover from the agricultural activities in the first 12 months. However, the entity does expect to make a profit from its agricultural activities in the long term. This is consistent with the type of agricultural activity the entity is conducting.

Reasons for decision
Summary: Subsection 23-10(1) of the GST Act provides an entity may be registered for GST if the entity is carrying on an enterprise (whether or not the entity's turnover is at, above or below the registration turnover threshold). Paragraph 9-20(1)(a) of the GST Act provides that an enterprise includes an activity, or a series of activities done in the form of a business. Goods and Services Tax Determination GSTD 2006/6 examines the issue of what constitutes an enterprise. Paragraph 12 of GSTD 2006/6 explains that the definition of 'business' found in section 195-1 of the GST Act is the same as that used in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) and in section 995-1 of the Income Tax Assessment Act 1997. (A similar explanation appeared in paragraph 6 of GSTD 2000/8, which was withdrawn and replaced by GSTD 2006/6 with effect from 13 December 2006.). Prior to the scheme becoming available to the public, an income tax Product Ruling was issued, which ruled that the specific activities to be conducted under the scheme will constitute the carrying on of a business by growers covered by the Ruling. The entity is such a grower in the scheme and will be carrying on activities as described in the Product Ruling. Therefore, the entity is carrying on activities in the form of a business which satisfyies the requirement under paragraph 9-20(1)(a) of the GST Act. However, paragraph 9-20(2)(c) of the GST Act provides that an enterprise does not include an activity, or series of activities done by an individual or a partnership (all or most of the members of which are individuals), without a reasonable expectation of profit or gain. Although, the entity does not necessarily expect to have any turnover in the first 12 months in connection with the managed investment scheme, the entity does expect to make a profit in the long term. This is consistent with the type of agricultural activity the entity is conducting. Therefore, the entity has a reasonable expectation of profit and paragraph 9-20(2)(c) of the GST Act does not exclude the entity's activities from being an enterprise. As such, the entity's activities constitute an enterprise. Accordingly, the entity is entitled to register for GST under subsection 23-10(1) of the GST Act.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-20 paragraph 9-20(1)(a) paragraph 9-20(2)(c) section 23-10 subsection 23-10(1)
Related public rulings and determinations: Goods and Services Tax Determination GSTD 2000/8 | Goods and Services Tax Determination GSTD 2006/6
Subject references: Goods and service tax GST registration GST enterprise