Private ruling: Goods and services tax (GST) and transfer of farm land
Published: April 2015

Ruling: Q1: Will GST be payable on your transfer of Lot X to individual B? | A1: No.

Relevant facts and circumstances: You are registered for GST. You and your late spouse (individual A) were formerly in a partnership that carried on a farming business on adjacent properties in a locality in Australia. The properties included Lot X. You and your husband jointly owned these properties. The title corresponding to Lot X was not created from a subdivision that you or you and individual A brought about. Individual A died several years ago. You subsequently became the sole owner of the properties. You continued to carry on a farming business on the properties as a sole trader. The farming business has been carried on on the properties for a period greater than 5 years. Pursuant to a 'Contract for the sale of land', you have agreed to transfer the freehold interest in Lot X to individual B for no consideration. Individual B is not your child. However, they are the child of individual A. You will continue to carry on a farming business on Lot X up to the time you transfer it. Lot X is vacant land with a dwelling entitlement. Individual B intends to erect their principal place of residence on Lot X. Individual B has no current intention to carry on, or allow another entity to carry on, a farming business on Lot X after it is transferred to him.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1) | A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 9-20 | A New Tax System (Goods and Services Tax) Act 1999 section 9-40 | A New Tax System (Goods and Services Tax) Act 1999 subsection 72-5(1) | A New Tax System (Goods and Services Tax) Act 1999 subsection 38-475(1) | A New Tax System (Goods and Services Tax) Act 1999 section 195-1 | Income Tax Assessment Act 1936 section 318 | Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision: Summary: GST is not payable on your transfer of Lot X because there will be no consideration for the supply and you will not make the supply in the course or furtherance of your farming enterprise. | Detailed Reasoning - Detailed reasoning: GST is payable by you on your taxable supplies. You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states: 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 Australia; and (d) you are *registered, or *required to be registered. However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed. (*Denotes a term defined in the GST Act) Section 9-5 of the GST Act is modified by subsection 72-5(1) of the GST Act, which states: The fact that a supply to your *associate is without *consideration, does not stop the supply being a *taxable supply if: (a) your associate is not *registered or *required to be registered for GST; or (b) your associate acquires the thing supplied otherwise than solely for a *creditable purpose. You meet the requirements of paragraphs 9-5(c) and 9-5(d) of the GST Act. This is because: • your transfer of Lot X is connected with Australia, as this property is located in Australia, and • you are registered for GST. | Detailed Reasoning - Consideration: You will not meet the requirement of paragraph 9-5(a) of the GST Act. However, we need to consider whether subsection 72-5(1) of the GST Act applies. | Detailed Reasoning - Supplies to associates: Section 195-1 of the GST Act defines associate. It provides that 'associate' for the purposes of the GST Act has the meaning given by section 318 of the Income Tax Assessment Act 1936 (ITAA 1936). Section 318 of ITAA 1936 provides that a relative of an individual is an associate of that individual. 'Relative' is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) . Relatives of an individual include the lineal descendants of that individual's spouse. Lineal descendants include sons and daughters. Subsection 995-1(1) of the ITAA 1997 states that spouse includes: (a) another individual (whether of the same sex or a different sex) with whom the individual is in a relationship that is registered under a *State law or *Territory law prescribed for the purposes of section 2E of the Acts Interpretation Act 1901 as a kind of relationship prescribed for the purposes of that section; and (b) another individual who, although not legally married to the individual, lives with the individual on a genuine domestic basis in a relationship as a couple. However, subsection 318(7) of the ITAA 1936 provides that a reference to the spouse of a person does not include: (a) a spouse who is legally married to the person but living separately and apart from the person on a permanent basis; or (b) a spouse within the meaning of paragraph (a) of the definition of spouse in subsection 995-1(1) of the ITAA 1997 who is living separately and apart from the person on a permanent basis. Individual A was your spouse. While individual A was alive, individual B was your relative because they were the child of your spouse. Therefore, individual B was an associate of yours. However, individual A is no longer your spouse as they are deceased, so you are no longer in a marital relationship with them. Therefore, individual B is no longer your relative. Hence, individual B is no longer your associate. Therefore, subsection 72-5(1) of the GST Act does not apply. | Detailed Reasoning - Supply in course or furtherance of an enterprise: The transfer of the property will not be a supply you make in the course or furtherance of your farming enterprise given that: • the disposal of the property is not due to business circumstances of the farming business you carry on • the transfer of the property is a private application of the property and it is to meet the personal needs of your late spouse's child • there is a lack of a commercial flavour in the absence of consideration in this case • the transfer will not further your farming business, even indirectly • the transfer is not a supply of something that you would ordinarily supply in the course of your farming enterprise Therefore, you do not meet the requirement of paragraph 9-5(b) of the GST Act. | Detailed Reasoning - GST-free sale of farmland; subdivided land: A sale of subdivided farm land to an associate is potentially GST-free under subsection 38-475(1) of the GST Act. It provides that the supply of a freehold interest is 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. Section 195-1 of the GST Act defines potential residential land as land that it is permissible to use for residential purposes, but that does not contain any buildings that are residential premises. You will transfer a freehold interest in property. You will transfer land that it is permissible to use for residential purposes, but the land does not contain any buildings that are residential premises. Therefore, you will transfer potential residential land. In accordance with ATO Interpretative Decision ATO ID 2009/131, in order to meet the requirements of paragraph 38-475(1)(a) of the GST Act, the vendor/transferor must have carried out the subdivision that resulted in the creation of the lot to be disposed of and they must have carried on a farming business on the pre-subdivision land for the five years up to the time of commencement of the subdivision. You have not brought about the creation of Lot X through a subdivision that you have done. Therefore, you do not meet the requirements of paragraph 38-475(1)(a) of the GST Act. You will supply Lot X for no consideration. However, the transferee is not your associate. Therefore, you do not meet the requirements of paragraph 38-475(1)(b) of the GST Act. As you do not meet all of the requirements of subsection 38-475(1) of the GST Act, your transfer of the property will not be GST-free under that provision. However, because you do not meet the requirements of paragraphs 9-5(a) and 9-5(b) of the GST Act, GST is not payable on your transfer of the property.