Find out what conditions need to be met when selling your farmland as GST-free.
When you sell farmland, your sale is GST-free if both the:
- land was used for a farming business for at least 5 years immediately before the sale
- buyer intends it to be used for a farming business.
A sale of farmland includes all fixtures attached to the land, including:
- residential property
- shearing sheds
- workers' cottages
These fixtures form part of the land, so they are included in any GST-free supply of the land. The main residence is included, provided the private use of the residence doesn't cause the land to lose the essential characteristics of farmland.
A lease of farmland is also GST-free if the above conditions are met and the lease is to an Australian Government agency on a long-term lease.
A lease is considered long-term if:
- it is for at least 50 years
- it is renewed or extended and expected to continue for at least 50 years after the renewal or extension date
- the terms of the lease (or renewal) are substantially the same as those under which the supplier held the property (unless the supplier is an Australian Government agency.
Sales of subdivided land that was farmed for at least 5 years will be GST-free if both the:
- land can be used for residential purposes
- sale is made to an associate of the landowner without payment or for payment that's 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 either:
- by an Australian Government agency
- a long-term lease.
The sale of farmland, together with certain assets (an enterprise) may, in some cases, be seen as a sale of a going concern and may be GST-free.
If you sell farmland and don't meet these conditions, the sale may be taxable and you may be liable for GST on the sale.
If you purchase a GST-free going concern or farmland that includes residential property (for example, leased residential property) you need to adjust (increase) the GST for any non-creditable purposes the residential property is used for.
The 'increasing adjustment' is usually worked out as:
- 10% × the sale price × the proportion of non-creditable use.
If the proportion of non-creditable use changes over time, you may need to make additional increasing or decreasing adjustments.
Example: making an increasing adjustment
Bill purchases GST-free farmland for $500,000.
He uses the land to carry on a farming business and intends to build a new house on part of the land to rent out.
The rent of the house is expected to represent 20% of Bill’s entire business. Bill has an increasing GST adjustment of:
10% × $500,000 × 20% = $10,000.End of example