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Edited version of private ruling
Authorisation Number: 1011649604778
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Ruling
Subject: goods and services tax (GST) and purchase of farm land
Question
Will you be entitled to an input tax credit on your purchase of the property?
Answer
No.
Relevant facts and circumstances
Individual X and individual Y (you) are not registered for GST.
You are not currently carrying on an enterprise.
You will purchase a property located in Australia (the property).
The property is a certain number of hectares of vacant land.
The vendor is registered for GST.
The vendor carries on a business of maintaining cattle for the purpose of selling the cattle's milk. This business will have been carried on, on the property for at least the period of 5 years preceding the sale of the property to you.
You will allow the vendor to agist cattle on the property free of charge for a certain period of time after the time of sale of the property to you.
At some point in time after the time of sale of the property to you, you may carry on a business of maintaining livestock for the purpose of selling them or the livestock's bodily produce (including natural increase), on the property.
You will build your residence on the property.
You will register for GST a certain length of time after the time of sale of the property to you.
You anticipate that at some point in the future you may be unable to continue carrying on a business of maintaining livestock for the purpose of selling them or the livestock's bodily produce (including natural increase), on the property due to your age and poor health.
Reasons for decision
Summary
You will not be entitled to an input tax credit on your purchase of the property, as the sale of the property to you will be a GST-free sale of farm land under section 38-480 of the GST Act.
Detailed reasoning
You are entitled to input tax credits on your creditable acquisitions.
You make a creditable acquisition where you satisfy the requirements of section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states:
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.
(*Denotes a term defined in section 195-1 of the GST Act)
We shall now consider whether you will satisfy the requirement of paragraph 11-5(b) of the GST Act.
You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which states:
You make a taxable supply if:
· you make the supply for *consideration; and
· the supply is made in the course or furtherance of an *enterprise that you *carry on; and
· the supply is *connected with Australia; and
· you are *registered, or *required to be registered.
However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.
In accordance with section 38-480 of the GST Act, a sale of land is GST-free if:
· 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
· the recipient of the supply intends that a farming business be carried on, on the land.
In accordance with paragraph 38-475(2)(b) of the GST Act, a farming business includes a business of maintaining animals for the purpose of selling them or their bodily produce (including natural increase).
In accordance with paragraph 6.2.1(a) of the Primary Production Industry Partnership : Issues Register, it is recognised that, generally, there will be some private use of farmland. Provided that the private use is not so significant that the land loses the essential characteristics of farmland, section 38-480 of the GST Act may continue to apply.
In your case, the vendor carries on a business of maintaining animals for the purpose of selling the animals' bodily produce, on the land to be sold to you. Therefore, a farming business is carried on, on the land. This business will have been carried on, on the land for at least the period of 5 years preceding the sale of the land to you. Therefore, the requirement of paragraph 38-480(a) of the GST Act will be satisfied.
The recipient of the supply intends that a farming business be carried on, on the land. That is, you intend to allow the vendor to carry on its farming business on the land for a certain period of time after the time of sale of the land to you. Your private use of the land (using part of the land for your residence) will not be so significant that the land will lose the essential characteristics of farmland. Therefore, the requirement of paragraph 38-480(b) of the GST Act will be satisfied.
At some point in time after the time of sale of the property to you, you may carry on a business of maintaining animals for the purpose of selling them or the animals' bodily produce (including natural increase), on the property. This activity would be a farming business.
There is no requirement in section 38-480 of the GST Act that a farming business be carried on, on the land for a specified minimum period of time after the time of sale of the land. Hence, the fact that you may cease to carry on a farming business on the property in question at some point in the future will not prevent the sale of the property to you from being GST-free under section 38-480 of the GST Act.
Therefore, the requirements of section 38-480 of the GST Act will be satisfied. Hence, the sale of the property to you will be GST-free, and therefore, the sale of the property to you will not be a taxable supply. Consequently, you will not satisfy the requirement of paragraph 11-5(b) of the GST Act.
As you will not satisfy all of the requirements of section 11-5 of the GST Act, you will not make a creditable acquisition of the property and therefore, you will not be entitled to an input tax credit on your purchase of the property.
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