Private ruling: Goods and services tax (GST) and the sale of farmland
Published: July 2012

Ruling: Q1: Is there a GST liability applicable to the sale of your farmland? | A1: No, there is no GST liability applicable to the sale of your farmland.

Relevant facts and circumstances: You are not registered for GST. You have a business partnership with your spouse. Your business partnership is not registered for GST. You own a small area of farmland used for grazing livestock ('property'). You personally own this property, and have legal title to it in your own name. The partnership operated an enterprise of farming livestock on the property. The partnership has lodged income tax returns up to the present time. The partnership has experienced both profits and losses over recent years. The numbers of head of livestock grazed has varied but the total size has always been small. You are of retirement age. Your spouse has recently turned XX years of age and has recently suffered from an injury, and as a consequence is unable to work in the partnership's livestock raising enterprise. You now wish to sell your land, and purchase a retirement home unit attached to a nursing home from the proceeds. The current annual turnover of your grazing activities is less than the current registration turnover threshold.

Relevant legislative provisions: A New Tax System (Goods and Services tax) act 1999 Section 9-5. | A New Tax System (Goods and Services Tax) Act 1999 Section 23-5 A New Tax System (Goods and Services tax) act 1999 Section 184-5. | A New Tax System (Goods and Services tax) act 1999 Section 188-25.

Reasons for decision: Summary: In this case, we first need to determine whether the farmland being sold was a partnership asset or your personal asset. Vermeesch and Lindgren discuss partnership property in paragraph 15.27 of Business Law of Australia (Sydney: Butterworths, 7 th ed, 1992). It says: "Although property is used for the purpose of the partnership business it does not necessarily become partnership property. It may remain the separate property of a partner (as in Harvey v Harvey (1970) 120 CLR 529) and may even be owned jointly by all of the partners as their private property. Whether an item of property used in a partnership is the property of the partnership is a question of fact, which can be determined only from the terms of the partnership agreement or inferences from the conduct of the partners towards the property during the subsistence of the partnership." Further support for this can be found in Yorston, Fortescue and Turner, Australian Commercial Law (Brisbane: The Law Book Company, 20 th ed, 1995) at 690. It says: "Whether the separate property of one partner used in a partnership becomes part of the assets of the partnership or remains the separate property of the partner ultimately depends upon the agreement between the partners". This issue has also been considered by the Courts. In Harvey v Harvey (1970) 120 CLR 529 at 563, Walsh J held: "It is common for agreements to be made, particularly amongst members of a family, for the use by a partnership of land which belongs to one of the partners. By such an agreement, unless a different intention is expressed or is to be inferred from the circumstances, the partnership acquires a right to have the use of the land so long as the partnership continues but no greater right or interest in it either at law or in equity than a right to use the land, a right which may be regarded as arising either from a tenancy or from a licence. Subject to that right the ownership of the property remains with its former owner. It is true, of course, that just as money may be brought into the partnership assets by way of a contribution by one partner to the capital of the partnership, so also land may be brought in as a contribution to capital. But in any particular case in which there is no formal agreement putting the matter beyond doubt, it must be decided upon a consideration of the circumstances whether it should be concluded that this has been done or whether the partnership has acquired no more than a right to use the land." Your tax agent has informed us that there was no formal written partnership agreement between you and your spouse to operate your partnership. In this case we are told that you personally own the farmland to be sold with legal title to the land being held in your own name. We are also informed that you as an individual are the entity selling the farmland. Therefore, it is considered that the farmland is your personal asset and is not an asset belonging to the partnership. From the given facts we conclude that the land being sold has always been your property. The partnership acquired no more than a right to use the land. | Detailed Reasoning - Taxable supply: Under section 9-5 of A New Tax System Goods and Services Tax Act 1999 (GST Act) you make a taxable supply if: · you make a supply for consideration · the supply is made in the course or furtherance of an enterprise that you carry on · the supply is connected with Australia, and · you are registered, or are required to be registered, for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. Section 23-5 of the GST Act provides that you are required to be registered for GST if: · you are carrying on an enterprise, and · your GST turnover meets the registration turnover threshold, which is currently $75,000. If you sell your property you will make a supply for consideration. Further, as the land is located in Australia, the supply would be connected with Australia. Therefore, paragraphs 9-5(a) and (c) of the GST Act will be satisfied. You do not carry on an enterprise on your own account. Therefore you do not satisfy paragraph 9-5(b) of the GST Act. You are not registered for GST. As you do not carry on an enterprise on your own account, you are not required to be registered. Therefore you do not satisfy paragraph 9-5(d) of the GST Act. Accordingly, you do not satisfy section 9-5 of the GST Act. Therefore, the sale of your land is not a taxable supply under section 9-5 of the GST Act and you do not incur a GST liability.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.