In May 2012 the Commissioner published over 30 private rulings on the Register dealing with GST issues.  A full listing of the rulings can be accessed here and through the menu on this site.

This month I focus on a private ruling which finds that the sale of farming land to a property developer will be GST-free pursuant to s 38-480 of the GST Act, notwithstanding that the purchaser’s intention was to develop the land.

Private Ruling No.1012128336865 – GST and the sale of farm land

The facts of the application can be shortly stated:

• the vendor entered into a contract of sale to sell its farming property to the purchaser.  The vendor acquired the land prior to 1 July 2000 and carried on a farming business for the land five years and will continue to carry on the farming business until completion of the sale.
• the purchaser is a property developer and the contract of sale is dependent upon Council’s approval of the purchaser’s subdivision plans.  Completion of the sale is 14 days after the plan of subdivision is registered
• the purchaser is required under the contract of sale to grant to the vendors a licence to allow the vendors to continue to occupy the property after completion of the sale and to continue their farming business.  Either party may terminate (for any reason) the licence by giving 60 days notice in writing.

The private ruling finds that the sale will be GST-free because “the recipient of the supply intends that a farming business be carried on, on the land”.  The ruling found that the licence agreement indicates the purchaser’s intention to continue the farming business (it not being necessary that the purchaser carry on the farming business themselves).

The ruling is interesting because it accepts that it is sufficient that the purchaser’s intention to carry on farming need only be one of a number of concurrent intentions, and arguably a secondary intention (to the purchaser’s main intention of developing the property).  There is also no timing requirement in s 38-480. Accordingly, taken to its extreme, it would arguably be sufficient that the vendor have a licence agreement to carry on farming for one day after settlement. Of course, the anti-avoidance provisions in Division 165 may have a role to play in such circumstances.  Nevertheless, the stamp duty savings to the purchaser under this arrangement would likely be significant (as well as potential reductions in finance costs of the GST component of the price).

The ruling does note the potential scope of the adjustment provisions in Division 129 and Division 135 if the purchaser ultimately uses the land for input taxed purposes (i.e., residential leases).  However, if the land is developed for sale, those adjustment provisions should not arise.

International Cases Update – May 2012

In May, the following decisions relating to GST/VAT were published in New Zealand, the UK and Canada.

New Zealand

Court of Appeal

• Commissioner of Inland Revenue v Stiassny [2012] NZCA 93 – claim for refund of GST by receivers – to see my post of the decision click here
• Lewis G H Thompson v Commissioner of Inland Revenue [2012] NZSC 36 – re-registration of entity – turnover test

United Kingdom

Upper Tax Tribunal

• Benridge Care Homes Ltd v HMRC [2012] UKUT 132 – VAT returns lodged claiming refund of input tax but understating output tax – whether open to Revenue to reduce the input tax to nil in the returns
• Matthew Davies Special Occasions 2XL Limos v HMRC [2012] UKUT 130 – Value Added Tax – whether transport supplies rendered with stretched limousines, originally designed to carry 10 people, but adapted to carry only 9 people, were zero-rated – Appeal dismissed
• Vehicle Control Services v HMRC [2012] UKUT 130b – VALUE ADDED TAX – supply of parking control services – whether parking charges collected and retained by operator were consideration for a supply – whether outside the scope of VAT as damages for trespass or damages for breach of a contract between the operator and the motorist – whether additional consideration payable by landowner for provision of parking control services – appeal dismissed
• Wrag Barn Golf and Country Club v HMRC [2012] UKUT – VALUE ADDED TAX — option to tax land — whether option survived partnership changes — whether one partnership or two — First-tier Tribunal apparently decided only one — whether tribunal’s findings of fact supported by evidence — unclear — appeal remitted to First-tier Tribunal for re-hearing

Tax Tribunal

• Martisan Developments Ltd v Revenue & Customs [2012] UKFTT 283 – VAT;  joint venture;  written agreement;  whether written agreement truly reflected arrangements between individuals and companies they controlled;  acquisition and sale of development land;  supply of services;  identification of supplier;  nature of services;  whether activities of joint venturers constituted supply of services;  contribution to capital of joint venture; consideration;  nature of consideration; whether distribution of one half share of net profits amounted to consideration for supply of services; no;  appeal allowed.
• Norwich Airport Ltd v Revenue & Customs [2012] UKFTT 277 – VAT – fee paid by passengers to appellant – whether consideration for a supply – yes – whether supply zero rated as “making of arrangements” for the supply of transport of passengers in an aircraft designed to carry at least 10 passengers – no – whether exempt as a supply to meet the direct needs of aircraft or its cargo – no – appeal dismissed