• Farmland

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    Selling or leasing farmland

    When you sell farmland, your sale is GST-free if both:

    • the land was used for a farming business for at least five years immediately before the sale
    • the buyer intends that it be used for a farming business.

    A lease of farmland is also GST-free if the above conditions are met and the lease is:

    • by an Australian government agency, or
    • a long term lease.

    A long-term lease is either:

    • a lease for at least 50 years
    • a renewed or extended lease expected to continue for at least 50 years after the option to renew is exercised or the extension is granted.

    A sale of farmland includes all fixtures attached to the land, including residential premises, fences, shearing sheds, workers cottages and dams. As these fixtures form part of the land, they are included in the GST-free supply of the land. The main residence is included, provided the private use of the residence is not so significant that it causes the land to lose the essential characteristics of farmland.

    Subdivided farmland

    A sale of land subdivided from land which has been farmed for at least five years will be GST-free if both:

    • it is permissible to use the land for residential purposes
    • the sale is made to an associate of the landowner without payment or for payment that is less than the market value of that piece of land.

    A lease of subdivided farmland is also GST-free if the above conditions are met and the lease is:

    • by an Australian government agency, or
    • a long term lease.

    The sale of farmland together with certain assets may, in some cases, be seen as a sale of a going concern, and may be GST-free.

    If you sell farmland and you do not meet the above conditions, the sale may be taxable and you may be liable for GST on the sale.

    Using farmland for another purpose

    If the purchaser intends to use part of the farmland for an activity that is not solely taxable or GST-free, they will need to make an increasing adjustment.

    The amount of the increasing adjustment is usually worked out as follows:

    • 10% × the sale price × the proportion of non-creditable use

    You may need to make subsequent increasing or decreasing adjustments if this proportion of non-creditable use (not eligible for GST-free status) changes over time.

    Example: Making an increasing adjustment

    Bill purchases farm land GST-free for $500,000. As well as using the land to carry on a farming business, Bill intends to build a new residential house on part of the land and rent it out. The rent of the house is expected to represent 20% of Bill’s entire business. Bill therefore has an increasing GST adjustment of:

    10% × $500,000 × 20% = $10,000.

    End of example

    See also:

      Last modified: 30 Jun 2017QC 21960