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GST for the sale of farmland

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Q: A client purchased farmland in October 1997. They have operated a farming enterprise on the land since then. They are currently in negotiations to sell this land. If the purchaser intends to use the farmland in the course of a farming enterprise, then no GST will be applicable under the farming business exemption.

If the purchaser does not intend to use the land in the course of a farming enterprise:

1. Will the sale of the land need to include GST (i.e. plus GST on the sale contract)?

2. Can the margin scheme apply considering the original purchase of the land was pre-GST?

 

A: The question is silent about whether the client is registered or required to be registered for GST. If the client is not registered for GST, then the sale of the farm would be out of scope and therefore exempt from GST; The proceeds from the sale of a capital asset such as the farm would not form part of the client's GST turnover and would not therefore push them over the registration turnover threshold (GST Act s 188-25);

If the client is registered for GST. then the sale of the farm would potentially be a taxable supply under s 9-5. However, the sale of farmland that is intended to be used in a farming business would be a GST-free supply under s 38-480.

If the purchaser changes their mind and fails to carry on a farming business on the land, the purchaser will incur a GST liability by way of an increasing adjustment under s 135-10.

If the sale of the farm proceeds as a taxable supply, it will be eligible for the margin scheme since the property was acquired otherwise than as a taxable supply.

Written by Panbo Ye

I help people discover POWERFUL unknowns in Tax Ideas | Wealth Strategies | Retirement Planning | Finance Solutions!

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