ATO ID 2001/779: GST and the sale of farmland under the administration of a deceased estate
Date of decision: 23 December 2001
Business line: Indirect Tax

Issue
Is the entity, an executor of a deceased estate, making a GST-free supply under section 38-480 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it sells a freehold interest in farmland where there has been a break in farming activities immediately preceding the sale due to the winding up of the deceased's estate?

Decision
Yes, the entity is making a GST-free supply under section 38-480 of the GST Act when it sells a freehold interest in farmland where there has been a break in farming activities immediately preceding the sale due to the winding up of the deceased's estate.

Facts
The entity is an executor of a deceased estate. The estate includes a freehold interest in farmland. The deceased was the proprietor of the farming business on the farmland. The entity is winding up the farming business, selling off all of the assets and stock of the farming business and selling the freehold interest in the farmland. The farming business had been carried on upon the land for a period in excess of five years. There has been a break in farming activities due to the death of the farmer and the winding up of the deceased estate. The purchaser of the farmland intends to carry on a farming business upon the land. The entity is registered for goods and services tax (GST).

Reasons for decision
Summary: Subdivision 38-O of the GST Act allows the supply of farmland to be GST-free in certain circumstances. Section 38-480 of the GST Act provides that the supply of a freehold interest in land is GST-free if: In this case, the recipient of the supply (the purchaser) intends to carry on a farming business upon the land. Therefore, it must be determined if a farming business has been carried on for at least the period of five years immediately preceding the supply where there has been a break in the farming activities due to the winding up of the deceased's estate. The term 'farming business' is to be distinguished from the term 'farming activity'. A farming business includes farming activities such as fencing and tending stock. It also includes business activities such as keeping business records. Sometimes, a temporary cessation in the daily farming activities will occur, for example in the event of poor weather, taking holidays, leaving the land fallow and in this case, winding up of the deceased's estate. Although the farming activities have ceased during the period of the administration of the estate, it is necessary to determine whether the farming business is still being carried on during this time. The term 'carried on' is defined in section 195-1 of the GST Act to include doing anything in the course of the commencement or termination of the enterprise. Enterprise is defined in section 9-20 of the GST Act to include an activity or series of activities done in the form of a business. A farming business satisfies this definition. Therefore, a farming business is an enterprise within the meaning of the GST Act. As such, anything done in the course of the commencement or termination of a farming business, where carried out in a business like way, without unnecessary delay, is accepted as being part of carrying on the farming business. However, it must be considered whether the duties of winding up the deceased's estate are still part of carrying on the farming business where the duties are carried out by an executor as opposed to the farmer. Taxation Ruling IT 2622 explains that upon the death of a person, the property of the deceased passes to their estate, the legal control over which is exercised by an executor or an administrator. The executor or administrator, in effect, steps into the shoes of the deceased and winds up the deceased's personal affairs. Therefore, it is considered that the winding up of a farming business, whether performed by the business operator themselves, or by an executor or administrator upon the death of the business operator, will still be part of carrying on the farming business. Furthermore, it is accepted that the process leading up to the granting of probate and the stages that follow in administering the estate are necessary delays in winding up the deceased's farming business. Accordingly, although the farming activities have ceased following the death of the farmer, it is considered that the farming business is carried on continuously up until the time of sale because activities done in the cessation of a business are considered to be part of carrying on a business. As such, the farming business is considered to have been carried on continuously for at least the period of 5 years immediately preceding the supply, regardless of the fact that there has been a temporary cessation in the farming activities due to the winding up of the deceased estate. As a result, all of the requirements of section 38-480 of the GST Act have been met. Therefore, the entity is making a GST-free supply under section 38-480 of the GST Act when it sells a freehold interest in farmland where there has been a break in farming activities immediately preceding the sale due to the winding up of the deceased's estate.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-20 Subdivision 38-O section 38-480 section 195-1
Subject references: Goods & services tax GST free GST farm land Farming business GST supplies & acquisitions GST enterprise