Issue
Is the entity making a GST-free supply under section 38-475 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when it supplies land that is subdivided from land on which a farming business was carried on for at least 5 years but not up until commencement of the subdivision?
Decision
No. In these circumstances, the entity is not making a GST-free supply under section 38-475 of the GST Act.
Facts
The entity is an owner of land that is 'potential residential land' as defined in section 195-1 of the GST Act. The entity is supplying a freehold interest in the potential residential land to an associate for consideration that is less than the GST inclusive market value of the supply.
The potential residential land is subdivided from land on which the entity carried on a farming business for at least 5 years, but not up until commencement of the subdivision. The entity had ceased the farming business and used the land for non-farming purposes for a period of time before subdividing the land.
The entity is registered for GST and the supply of the land to the associate satisfies the other positive limbs of section 9-5 of the GST Act. The supply is not GST-free or input taxed under any other provision of the GST Act.
Reasons for Decision
Subsection 38-475(1) of the GST Act provides that the supply of a freehold interest in 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.
On the facts, paragraph 38-475(1)(b) of the GST Act is clearly satisfied.
The question is whether paragraph 38-475(1)(a) of the GST Act is satisfied. That is, whether the potential residential land that the entity is supplying to its associate 'is subdivided from land on which a farming business has been carried on for at least 5 years' if the subdivision commenced some time after the entity had ceased the farming business and used the land for non-farming purposes.
The use of the perfect tense in the phrase 'land on which a farming business has been carried on for at least 5 years' and the placement of that phrase next to the words 'is subdivided from' indicate a temporal connection is required between the carrying on of the business and the time of subdividing the land (see note 1 below). This means that to satisfy paragraph 38-475(1)(a) of the GST Act, the potential residential land must be subdivided from land on which a farming business continued to be carried on for at least 5 years up until commencement of the subdivision.
In this case, paragraph 38-475(1)(a) of the GST Act is not satisfied. While the entity carried on a farming business for at least 5 years on the land from which the potential residential land was subdivided, it did not carry on the farming business up until commencement of the subdivision.
Therefore, the supply of the potential residential land by the entity to its associate is not a GST-free supply under section 38-475 of the GST Act.
As section 9-5 of the GST Act is satisfied, and the supply is also not GST-free or input taxed under any other provision of the GST Act, the supply is a taxable supply. Note 1: in the phrase, the words 'has been carried on' are expressed in the perfect tense. It is to be contrasted with the simple past tense expression 'was carried on'. The grammatical use of the perfect tense in relation to a time period is to describe an action or event beginning in that period in the past and continuing up until a specified reference point. Whereas, the simple past tense is used to describe something that occurred and finished in the past. (See Greenbaum, S 1996, The Oxford English Grammar , Oxford University Press, New York; Biber, D and others 1999, Longman Grammar of Spoken and Written English , Pearson Education Limited, England; and Huddleston, R 1984, Introduction to the Grammar of English , Cambridge University Press, Cambridge.) Note 2: if the associate of the entity is not registered or required to be registered for GST or is acquiring the potential residential land for a non-creditable purpose, the application of section 72-70 of the GST Act needs to be considered. Section 72-70 of the GST Act is about the value of taxable supplies made to an associate for inadequate consideration.