If you’ve owned farm land since before the introduction of capital gains tax, you might expect that the significant capital gain you stand to make in selling part of your property will not face a GST bill. But that may well not be the case.
A couple owned land jointly and operated a farm business in partnership. As business turnover was greater than $75,000, they were registered for GST.
The plan was to subdivide three 25-acre blocks, selling them for $250,000 each. Although not GST experts, they knew from the front page of the standard contract for sale of land that GST is not payable on the sale of subdivided farm land.
But subdivided farm land is only GST-free if subdivided from land on which a farming business has been carried on for at least five years, and the supply is to an associate of the supplier without benefit, or for less than market value.
As none of the purchasers were associates and the sales were at market value, the sales were not GST-free. The sellers faced GST of $75,000.
To make matters worse, as none of the purchasers was going to use the land for farming, it was not possible to rely on the usual farm-land exemption or try to rely on any warranty by the purchasers in order to recover GST from them. The purchasers had no contractual obligation to pay the GST.
Contact your solicitor about GST responsibilities.
