Edited version of private ruling

Authorisation Number: 1011609616849

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Ruling

Subject: GST and acquisition of land

Question

Will you be making a creditable acquisition, when you acquire the land specified in your request?

Answer: No.

You will not be making a creditable acquisition, when you acquire the land specified in your request.

Relevant facts and circumstances

You are registered for goods and services tax (GST).

You have entered into a contract to purchase a parcel of land from a vendor.

The land is zoned for primary industry.

The vendor had purchased the abovementioned land over five years ago from its previous owner, who had used that land for farming purposes.

A related entity of the vendor (entity X) holds a mining tenement over a small section of the abovementioned land.

Although the vendor has not carried on farming businesses on the remaining land, they have allowed neighbouring farmers to graze sheep and plant crops during the last five years. The neighbouring farmers have been making payments to the vendor for such use of the land.

You are purchasing the entire land. However, following your purchase of the relevant land, the entity X 's ownership of the mining licence allows them access rights to a specified area of the land covered under the mining tenement.

After the sale of the property, the entity X will continue to hold a mining tenement over a specified section of the land.

You will be undertaking a specific farming business on the land after your acquisition.

When the mining tenement licence expires, the land will be required to be remediated and available to the owner for its zoned purpose (agriculture, grazing, and aquaculture).

Reasons for decision

Under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you make a creditable acquisition if:

· you acquire anything solely or partly for a creditable purpose; and

· the supply of the thing to you is a taxable supply; and

· you provide, or are liable to provide, consideration for the supply; and

· you are registered, or required to be registered for GST.

Section 11-20 of the GST Act provides that you are entitled to the input tax credit for any creditable acquisition that you make.

Based on the facts provided, you are acquiring the land for the purpose of carrying on a farming business on that land. You are liable to provide consideration for the supply and are registered for GST. As such, you will satisfy three of the requirements of section 11-5 of the GST Act. What remains to be determined is that whether the supply to you will be taxable.

Section 9-5 of the GST Act provides that an entity makes a taxable supply if:

· the supplier makes the supply for consideration; and

· the supply is made in the course or furtherance of an enterprise that the supplier carries on; and

· the supply is connected with Australia; and

· the supplier is registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input-taxed.

In the event where a vendor makes a supply that does not satisfy the requirements of section 9-5 of the GST Act, the supply would not be a taxable supply.

If the requirements of section 9-5 of the GST Act are met, then it is necessary to determine if the supply is GST-free or input taxed. This is because section 9-5 of the GST Act provides that a supply is not a taxable supply to the extent that it is GST-free or input taxed.

In the context of above, the sale of a property used as farm land will not be a taxable supply where the supply would be GST-free under section 38-480 of the GST Act.

Section 38-480 of the GST Act provides that the supply of a freehold interest in 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.

The first requirement to be satisfied under section 38-480 of the GST Act is that the land is land on which a farming business has been carried on for at least the period of five years preceding the supply.

The phrase, 'the period of 5 years preceding the supply' means that the period immediately preceding the supply must be a continuous period.

You have advised that the vendor had purchased the relevant land over five years ago from its previous owner who had been using the land for farming purposes. Although the vendor company has not used the land for farming purposes, the neighbouring farmers have been using this land for grazing sheep and planting crops during the last five years.

The phrase 'farming business' is defined for the purposes of the GST Act under subsection 38-475(2) of the GST Act as:

(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

(c) manufacturing dairy produce from raw material that the entity produced; or

(d) planting or tending trees in a plantation or forest that are intended to be felled.

In your case, the primary production activities have been carried out on the relevant part of the land for about five years prior to its sale to you. These activities fall within the definition of 'farming business' in paragraph 38-475(2)(b) of the GST Act. As such, we agree that farming activities have been carried on the land preceding the sale, as per the requirement in paragraph 38-480(a) of the GST Act.

For the purposes of section 38-480 of the GST Act it is irrelevant who has been conducting the farming business for those five years. The important factor to consider is the actual use of the land as opposed to the ownership of that land. Therefore, as long as a faming business is conducted on that land for at least five years immediately before the sale, the requirement in paragraph 38-480(a) of the GST Act will be satisfied.

In your case, small section of the land is covered under a mining tenement held for the purpose of mining. However, the predominant use of the land has been for farming purposes. As per the Commissioner's view expressed in Goods and Services Tax Ruling GSTR 2001/8, the portion of the land covered under the mining licence is incidental to the dominant part of the supply -i.e. farm land. Therefore, we accept that supply of the entire land can be treated as supply of farm land as a composite supply.

Paragraph 38-480(b) of the GST Act requires that the recipient intends that 'a farming business' be carried on. However, it is not necessary for the recipient of the supply to intend for the same type of farming business to be carried on, on the land. In your case, you (the recipient of the supply) intend to carry on a different type of farming business on the land. Accordingly, the requirement in paragraph 38-480(b) of the GST Act will also be satisfied.

As such, when the vendor makes the supply of the relevant land to you, the requirements in section 38-480 of the GST Act will be satisfied and the supply of the property will be a GST-free supply of a farm land.

Consequently, the supply of the land to you will not be a taxable supply, and paragraph 11-5(b) of the GST Act will not be satisfied. Accordingly, you will not be making a creditable acquisition of the relevant land for the purposes of section 11-5 of the GST Act. As such, you are not entitled to any input tax credits on the purchase of the farm land.

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