Private ruling: GST and sale of farmland
Date of advice: 8 July 2022
Published: October 2022
Ruling period: 1 July YYYY to 30 June YYYY
Date scheme commenced: 1 July YYYY

Ruling: Q1: Question 1 - Entity A and entity B (i) Are entity A and entity B a partnership as defined in section 195 - 1 and will the supply of Lot n1 by the entities by way of sale result in the formation of a partnership for GST purposes? | A14: Yes. The supply by entity C of its share of interests in Lot n2, Lot n3, Lot n4 and Lot n5 by way of sale is a taxable supply under section 9-5 and GST is payable on the sale, to the exclusion of the extent the supply of entity C's interest in Lot n2 is residential premises to be used predominantly for residential accommodation. The extent to which entity C's supply of its interest in Lot n2 is residential premises to be used predominantly for residential accommodation is considered an input taxed supply pursuant to section 40-65. Please note that sections 38-325 and 38-480 respectively provide that 'supplies of going concerns' and 'farmland supplied for farming' are, subject to certain criteria, GST-free. The Commissioner is only able to rule on the application of these GST-free sections when a sale contract and relevant information in relation to these provisions become available and provided to the Commissioner.

Relevant facts and circumstances: The Land subject to this ruling comprises n6 hectares of rural land over five lots in a specified suburb in Australia (the Land) originally purchased by Individual D in the year19YY. In the year 19YY the Land passed to Individual E, whose ownership interest in the Land was passed to members of the F family and related entities upon his death in the year 2YYY. The Land comprises: (i) Lot n2 on Diagram # being the whole of the land contained in Certificate of Title Volume # Folio # (Lot n2). (ii) Lot n1 on Diagram # being the whole of the land contained in Certificate of Title Volume # Folio # (Lot n1). (iii) Lot n3 on Plan # being the whole of the land contained in Certificate of Title Volume # Folio # (Lot n3). (iv) Lot n4 on Deposited Plan # being the whole of the land contained in Certificate of Title Volume # Folio # (Lot n4). (v) Lot n5 on Deposited Plan # being the whole of the land contained in Certificate of Title Volume # Folio # (Lot n5) Pursuant to a Contract for the Sale of Land (Contract of Sale) dated DD MM YYYY, the Land was transferred to entities X, Y and Z (collectively referred to as the 'XYZ Group'). On DDMMYYYY, the XYZ Group became the registered proprietors of the Land following settlement under the Contract of Sale. The XYZ Group were unable to fulfil their obligations under the Contract of Sale. On DDMMYYYY, the parties to the Contract of Sale entered into a Settlement and Contract Variation Deed (ABC Deed). Pursuant to the terms of the ABC Deed, the XYZ Group's obligations were discharged with the XYZ Group transferring the Land back to the vendors in the same ownership proportions as the Land had been held prior to the sale of the Land under the Contract of Sale. The Land was transferred on DDMMYYYY (YYYY Acquisition). Following the YYYY Acquisition, changes to the ownership interests in the Land (except Lot n1) occurred as a result of a dispute over the estate of Individual E and a family law matter. On DDMMYYY, the Court handed down consent orders which required that (among other things): (a) Individual S holds a two-third interest in n2, Lot n3, Lot n4 and Lot n5. (b) Entity C holds a one-third interest in Lot n3, Lot n2, Lot n4 and Lot n5. On DDMMYYYY, transfers of the Land took place to give effect to the consent orders as detailed above. In or around MMYYYY, having regard to the increasing urbanisation of the area surrounding the Land and the continuing growth of the region, the owners determined that the Land was slowly becoming unsuitable for specified industry business and it is only a matter of time before the Land would no longer be suitable for that use. In addition, Individual S was unwell. As a result of S's health issues, S required considerable care and support. Individual B was the administrator for S's affairs and a considerable amount of time was spent by Individual B taking care of S, rather than the business on the Land. Consequently, in or around YYYY, S, Entity B and entity C engaged an agent to sell the Land. This was met with very little interest from the market and no offer was received. On DDMMYYYY, S passed away. Under S's Will, entity A and Individual B were initially appointed as the executors of S's Estate, however, their appointment was subsequently disputed. A caveat was lodged to prevent any grant of probate such that entity A and Individual B were unable to obtain probate. As a compromise position pending final determination of the dispute, entity A was appointed as the interim administrator of S's Estate in late MMYYYY. Ultimately, the parties resolved the dispute by entering into a Deed of Settlement dated DDMMYYYY(Deed of Settlement) which resulted in the beneficiaries agreeing that Individual A be appointed as the sole executor of S's Estate, the caveat being removed, and probate being granted. Accordingly, the current ownership interests in the Land are as follows: Ownership Lot n3 Lot n2 Lot n1 Lot n4 Lot n5 Entity A two-thirds two-thirds one-half two-thirds two-thirds Entity C one-third one-third one-third one-third Entity B one-half After S's death, the sale of the Land was once again pursued by the Owners. Part of the reason for the current sale is that a specific term in S's will requires that S's interest in the Land be sold. The sale is consistent with the intention of the other owners. In accordance with the Deed of Settlement, the beneficiaries of S's Estate irrevocably authorised and directed entity A, entity B and entity C to use all reasonable endeavours to sell the Land. In respect of any sale of the Land: (i) The Land will continue to be used by entity C to operate the specified business until the Land is sold. (i) To date, no works have been undertaken to prepare the Land for an en-globo sale or for subdivision. The personal involvement of the Owners has been minimal. (ii) No subdivision or development works of the Land will be undertaken by the Owners or other parties prior to settlement. (iii) The Owners are committed to sell the Land. At the time the current private ruling application was lodged, the Owners were very close to executing a sale agreement with a potential purchaser. However, these negotiations subsequently ceased. The Owners are now commencing a process of going to market in order to sell the Land. As at the current date, the Owners do not have an executed sale contract in relation to the sale of the Land. (iv) The Owners have not and will not market the Land for sale directly and have engaged Colliers International to be responsible for requesting expressions of interest, approaching suitable purchasers, assessing offers and selecting the potential purchaser of the Land. (v) Whilst the Owners will not agree to a sale price (or part of the sale price) for the Land that is contingent on or calculated by reference to the profits or proceeds derived from, the subsequent sale of the Land (or subsequent subdivision and sale of the Land) by the purchaser of the Land, it is possible (although not necessarily the preference of the Owners) that the sale price agreed to by the Owners may have a deferred payment component. Any deferred payment component agreed to by the Owners would be payable in regular instalments and would not be contingent on the subsequent sale of the Land (or subdivision and sale of the Land) by the purchaser of the Land. Lot n2 contains a residential dwelling which has been periodically rented out to an unrelated third party for a number of years. The rent and cost of Lot n2 are split between entity A and entity C on the basis of their respective ownership interest. The existing residential premises on Lot n2 have been used only for the purposes of rent/lease for a period in excess of 5 years. The existing residential premises on Lot n2 have not had, and will not have, 'substantial renovations' as defined for GST purposes undertaken prior to the sale and subsequent settlement of Lot n2. The existing residential premises on Lot n2 will not be demolished and replacement premises built prior to the sale and subsequent settlement of Lot n2. Apart from entity A and entity B making their interests in the Land available to entity C and the sale of the Land, no other activities are undertaken by any combination of the Owners jointly. The Land has at all times throughout its ownership history been used for the purpose of running specified business. The relevant business is operated entity C. Prior to the establishment of entity C, members of the F family operated the relevant business. The above reference to the Land being used for the purposes of the relevant business, excludes part of Lot n2 which contains a residential dwelling. The Land is made available to entity C to operate its business. There is no written agreement and no fee payable by entity C to entity A and entity B. In relation to the outgoings for the Land, entity A pays two-thirds and entity C pays one-third. This arrangement includes the outgoings for Lot n1. The reason for this is that the size of Lot n1 is negligible when compared to the whole of the Land and so as a practical measure and for ease of administration and payment of any costs incurred in relation to the Land, the two-thirds and one-third split is maintained for Lot n1. The yearly outgoings of Lot n1 for the YYYY/YYYY and YYYY/YYYY years were $# and $# respectively. Entity A is not registered for GST. Entity C is registered for GST effective from DDMMYYYY. Entity B is not registered for GST.

Relevant legislative provisions: The A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | The A New Tax System (Goods and Services Tax) Act 1999 section 9-20 | The A New Tax System (Goods and Services Tax) Act 1999 section 9-40 | The A New Tax System (Goods and Services Tax) Act 1999 section 23-5 | The A New Tax System (Goods and Services Tax) Act 1999 section 38-325 | The A New Tax System (Goods and Services Tax) Act 1999 section 38-480 | The A New Tax System (Goods and Services Tax) Act 1999 section 40-65 | The A New Tax System (Goods and Services Tax) Act 1999 section 40-75 | The A New Tax System (Goods and Services Tax) Act 1999 section 188-15 | The A New Tax System (Goods and Services Tax) Act 1999 section 188-20 | The A New Tax System (Goods and Services Tax) Act 1999 section 188-25 | The A New Tax System (Goods and Services Tax) Act 1999 section 195-1 | The Income Tax Assessment Act 1997 section 995-1


Answer: No, the entity A and B are not a partnership as they do not satisfy the definition of a partnership for GST purposes under section 195-1 by reference to the meaning given in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997). | In regard to the sale of Lot n1, the entity A and B will each be making a supply of their respective interests in Lot n1 to the purchaser. These supplies will also not result in the formation of a partnership entity. | (ii) If the answer to Question 1(i) is yes, are entity A and entity B (as a partnership) carrying on an enterprise under section 9-20? | (iii) If the answer to Question 1(ii) is yes, are entity A and entity B (as a partnership) required to be registered for GST under section 23-5? | (iv) Is the supply of Lot n1 by entity A and entity B by way of sale a taxable supply under section 9-5 and subject to GST? | Answer: No. Please refer to the answer under questions 3(iii) and 4(iii) below. | Question 2 - Entity A and entity C: (i) Are entity A and entity C (as a partnership) carrying on an enterprise under section 9-20? | Entity A and entity C are 'in receipt of income jointly' in respect of the rental proceeds generated from the lease of the residential premises on Lot n2 to a third party. As such, the parties are a tax law partnership as defined and an entity for GST purposes (Reference: paragraph 52 of GSTR 2004/6). | However, in this case the Commissioner does not consider the leasing enterprise to be carried on by the partnership entity. | The Commissioner considers the leasing enterprise is carried on by entity A and entity C each in their own right as a co-owner in respect of their respective interests in the property (References: paragraph 9-20(1)(c); paragraphs 64 - 72 of GSTR 2004/6) | (ii) If the answer to Question 2(i) is yes, are entity A and entity C (as a partnership) required to be registered for GST under section 23-5? | (iii) Is the supply of Lot n3, Lot n2, Lot n4, and Lot n5 by entity A and entity C (as a partnership) by way of sale a taxable supply under section 9-5 and subject to GST? | Answer: No. Please refer to the answer under questions 3(iii) and 5 below. | Question 3 - Entity A: (i) Is entity A carrying on an enterprise under section 9-20? | Answer: Yes, entity A is carrying on the enterprises of licensing or granting permission of the use of its interest in the Land to entity C and as discussed above, leasing residential premises to a third party. These activities fall within the scope of paragraph 9-20(1)(c) and amount to an enterprise for GST purposes. | (ii) If the answer to Question 3(i) is yes, is entity A required to be registered for GST under section 23-5? | Answer: No, under section 23-5 entity A is not required to be registered for GST in relation to a sale of its interest in the Land. | Whilst entity A is carrying on an enterprise, entity A's turnover does not meet the GST registration turnover threshold. | Turnover generated from the lease on the residential premises are excluded from current and projected turnover calculations (paragraph 188-15(1)(a) and paragraph 188-20(1)(a) respectively). | In addition, the Commissioner considers the sale of entity A's interests in the various Lots to be a transfer of a capital asset. Pursuant to paragraph 188-25(a) the proceeds from the sale will be disregarded in working out its projected GST turnover and accordingly the projected turnover will not meet the GST registration turnover threshold. | This is provided that entity A does carry on any other enterprise or enterprises with GST turnover that meets the GST registration turnover threshold of $75,000. | (iii) Is the supply by entity A of its interest in Lot n1, Lot n2, Lot n3, Lot n4, and Lot 8n5 by way of sale a taxable supply under section 9-5 and subject to GST? | Answer: No, the supply by entity A of its interest in the relevant lots by way of sale will not be a taxable supply as defined under section 9-5 and GST will not be payable on the sale. | This is because entity A is not required to be registered for GST as determined under Question (3)(ii) above. | In addition, the sale of Lot n2 will be input taxed under section 40-65 to the extent the supply of the Executor's interest in Lot n2 is residential premises to be used predominantly for residential accommodation. | Question 4 - Entity B: (i) Is entity B carrying on an enterprise under section 9-20? | Answer: Yes, entity B is carrying on the enterprise of licensing or granting permission of the use of its interest in Lot n1 to entity C. This activity falls within the scope of paragraph 9-20(1)(c) and amounts to an enterprise for GST purposes. | (ii) If the answer to Question 4(i) is yes, is entity B required to be registered for GST under section 23-5? | Whilst entity B is carrying on an enterprise, entity B's turnover does not meet the GST registration turnover threshold. | The Commissioner considers the sale of entity B's interests in Lot n1 to be a transfer of a capital asset. Pursuant to paragraph 188-25(a) the proceeds from the sale will be disregarded in working out entity B's projected GST turnover and accordingly the projected turnover will not meet the GST registration turnover threshold. | This is provided that entity B does not carry on any other enterprise or enterprises with GST turnover that meets the GST registration turnover threshold of $75,000. | (iii) Is the supply by entity B of its interest in Lot n1 by way of sale a taxable supply under section 9-5 and subject to GST? | Answer: No, the supply by entity B of its interest in Lot n1 by way of sale will not be a taxable supply as defined under section 9-5 and GST will not be payable on the sale. This is because entity B is not required to be registered for GST under section 23-5 as determined under Question 4(ii) above. | Question 5 - Entity C: Is the supply by entity C of its share of interest in Lot n2, Lot n3, Lot n4 and Lot n5 by way of sale a taxable supply under section 9 - 5 and subject to GST?