• Legal database
Legal database

ATO Interpretative Decision

ATO ID 2001/291

Goods and Services Tax

GST and Sale of Farmland
FOI status: may be released
  • This ATO ID has been amended to improve clarity.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the entity, a grazier, making a GST-free supply under section 38-480 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it sells its grazing property?

Decision

Yes, the entity is making a GST-free supply under section 38-480 of the GST Act when it sells its grazing property.

Facts

The entity carries on a business of grazing cattle for sale. The entity grazes the cattle on the land it owns. The entity is now selling the land. The entity has been carrying on the business on the land for a period of 5 years and will continue to do so leading up to the sale.

The purchaser of the land intends to carry on a horticulture business on the property.

The entity is registered for goods and services tax (GST).

Reasons for Decision

Subdivision 38-O of the GST Act allows the supply of farm land to be GST-free in certain circumstances. Section 38-480 of the GST Act states:

'The supply of a freehold interest in, or the lease by an Australian government agency of or the long term lease of, land is GST-free if:

(a)
the land is land on which a farming business has been carried on for at least the period of 5 years preceding the supply; and
(b)
the recipient of the supply intends that a farming business be carried on, on the land.'

Therefore, for the sale of farm land to be GST-free, the above requirements must be satisfied.

In this case, the entity has been carrying on a business of grazing cattle for sale on the land. The entity has been carrying on that business on the land for the period of 5 years preceding the sale (supply). Furthermore, the purchaser (the recipient of the supply) intends to carry on a horticulture business on the land. As such, it is necessary to determine whether the entity's grazing activities amount to a 'farming business' as per the first requirement in section 38-480 of the GST Act; and whether a horticulture business amounts to a 'farming business' as per the second requirement in section 38-480 of the GST Act.

The phrase 'farming business' is defined for the purposes of the GST Act. Subsection 38-475(2) of the GST Act states:

'An entity carries on a farming business if it carries on a business of:

(a)
cultivating or propagating plants, fungi or their products or parts (including seeds, spores, bulbs and similar things), in any physical environment; or
(b)
maintaining animals for the purpose of selling them or their bodily produce (including natural increase); or ....'

In this case, the entity has been carrying on a business of grazing cattle for sale. This activity falls within the definition of 'farming business' in paragraph 38-475(2)(b) of the GST Act, as grazing cattle for sale is 'maintaining animals for the purpose of selling them'. As such, a 'farming business' has been carried on for at least the period of 5 years preceding the supply as per the requirement in paragraph 38-480(a) of the GST Act.

In addition, the purchaser (the recipient of the supply) intends to conduct a horticulture business on the property. This activity falls within the definition of 'farming business' in paragraph 38-475(2)(a) of the GST Act because 'horticulture' involves the growing of plants for sale. Furthermore, as paragraph 38-480(b) of the GST Act requires that the recipient intend that 'a farming business' be carried on, it is not necessary for the recipient of the supply to intend for the same farming business to be carried on, on the land. Accordingly, the requirement in paragraph 38-480(b) of the GST Act is also satisfied.

Therefore, as the requirements in section 38-480 of the GST Act are satisfied, the entity is making a GST-free supply of farm land.

[NOTE: The important factor to consider, in determining whether a supply of farm land is GST-free under section 38-480 of the GST Act, is the use of the land as opposed to the ownership of it. Therefore, as long as a farming business is conducted on the land for at least the 5 years immediately before the sale, the requirement in paragraph 38-480(a) of the GST Act is satisfied, regardless of who has been conducting the farming business for that 5 year period. Likewise, the recipient of the supply need only intend that a farming business be carried on, on the land. They are not required to carry on a farming business themselves in order to satisfy the requirement in paragraph 38-480(b) of the GST Act.]

Date of decision:  26 July 2001

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   Subdivision 38-O
   section 38-475(2)(a)
   section 38-475(2)(b)
   section 38-480
   paragraph 38-480(a)
   paragraph 38-480(b)

Related ATO Interpretative Decisions
ATO ID 2001/292

Other References:
Primary Production Newsletter No. 2 - 23 May 2000

Keywords
Goods & services tax
GST free
GST farm land
Supply of land

Siebel/TDMS Reference Number:  CW229103

Business Line:  Indirect Tax

Date of publication:  8 September 2001

ISSN: 1445-2782


Back to top