The information provided below is general in nature and should not be relied upon legal advice. You should call 03 5445 1000 and speak to a lawyer at OFRM about your particular circumstances.

GST and Property (Part 2) - Commerical and Farming Exemptions

GST and Property (Part 2) - Commerical and Farming Exemptions

On Wednedsay I showed you how someone purchasing a property for renovation can potentially reduce their GST by buying and selling under the Margin Scheme (see GST and Property (Part 1): Using the Margin Scheme to Reduce Profit. Today I'll cover how the GST interacts with commerical going concerns and farming property.

Commercial property and the Going Concern exemption

GST is chargeable on the sale of all commercial property if you are registered for GST. However if the property is part of a "going concern" the property sale will be exempt from GST.

In order to be a going concern the property can be sold as part of a business together with the assets and operating structure of the business or a tenanted building.

The tenanted building must be either fully tenanted where all of the leases and agreements are included in the sale, so the leases must continue through the settlement date. If the property is only partially tenanted the available areas need to be being marketed for lease or undergoing repairs or refurbishment.

If the property is sold as part of a business you must also sell everything necessary for the business to continue operating and must carry on the business yourself up until the day of sale.

The purchaser must also be registered for GST to utilise the going concern exemption.

For purchasers if there will be a change in the tenant of the property it may be better to organise for the lease to be transferred to the new tenant then to request Vacant Possession, as vacant possession will lose the benefit of the going concern exemption.

Selling farm land and GST

When you sell farmland the sale is GST free if the land was used for a farming business for at least five years immediately before the sale and the buyer intends to use the land for their own farming business.

A farming business is defined as any of the following;

  • cultivating or propagating plants, fungi or their products or parts (including seeds, spores, bulbs and similar things), in any physical environment
  • maintaining animals for the purpose of selling them or their bodily produce (including natural increase)
  • manufacturing dairy produce from raw material that the entity produced
  • planting or tending trees in a plantation or forest that are intended to be felled

This exemption can also apply after land has been subdivided provided the purchaser intends to carry on a farming business after settlement on the newly subdivided land.

There is also an exemption available for farmers selling potentially residential vacant land provided the land was used for farming for five years prior to the subdivision and the land is being gifted or sold to an associate at less than the market value. It is important to note that this is the only exemption to GST for vacant residential land.

This is of particular importance if you are planning to subdivide and sell farming land as residential land. This would not be GST free if you are registered for GST. An example would be a farmer who subdivided his farm into 5 x 20 acres lifestyle blocks and sold them for $220,000 each. Although a farming business had been carried on there for five years preceding the subdivision and sale, the purchasers are not intending to carry on a farming business after settlement. As no exemption is available the GST component on the sales would be $20,000 on each and the farmer would be left with a $100,000 GST bill.