Life Interests Testamentary Trusts

WHAT IS A MIXED SUPPLY FOR GST PURPOSES?

A mixed supply for Goods and Services Tax (GST) purposes occurs when there is a transaction which has both a taxable and non- taxable component.

An example is where a property sale occurs in which a person’s (we will call the person Jim for illustrative purposes) home is on the same property that is also used to an extent for business purposes.

Jim lives on a 200 acre property which consists of a large home and 5 acres used for personal use and on the balance of land operates a 195 acre beef cattle farm, Jim is registered for GST.

Jim has decided he is going to sell the property and retire to the Gold coast. He expects the property will sell for approximately $2,500,000.

The contract of sale will need to recognise that the sale would be considered a mixed supply as there are two components:

  1. House and 5 acres– used as Jim’s home and therefore it is considered input taxed i.e. no GST applies to this portion of the transaction. On the contract it needs to show a value for this of the total sale price for example $1,500,000 (the selling Agent could provide a value). This is also the portion that we would be looking to apply the Main Residence exemption to.
  2. Jim’s Farming land of approximately 195 acres- the value attributed on the contract will be the balance of the sale price (sale price less value for the house and 5 acres) based on our example it would be a value of $1,000,000. As Jim is registered for GST and used the land for part of his enterprise then GST is applicable however the GST free farmland exemption could be applied if the following applies:
  •  The land was used in a farming business for at least the 5 years immediately preceding the sale (regardless of who carried on the farming business); and
  • At the time of sale, the purchaser intends that the land will be used in a farming business after the sale.

If the GST free farmland exemption is to be applied it should be listed on the contract stating GST applies and that the GST free farmland exemption is being applied.

 

 

 

 

The content within these articles was correct at the time of writing. Please contact us for updated information and advice. 

We provide accounting and wealth management services to clients in Woodend, Gisborne and Macedon Ranges areas within Victoria Australia.

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