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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your written advice

Authorisation Number: 1012683348572

Ruling

Subject: Goods and services tax (GST) and sale of farmland and going concerns

Question 1

Will GST be payable on your sales of the lots?

Answer

No.

GST will not be payable even if:

Question 2

Will GST be payable on your sale of plant and equipment to entity X

Answer

Your sale of plant and equipment that you used in a livestock farming sub-enterprise (for example, a particular livestock farming sub-enterprise) to entity X will be subject to GST unless:

Your sale of plant and equipment that you used solely in a crop farming sub-enterprise to entity X will be subject to GST.

Question 3

Will GST be payable on your sale of livestock and fodder that you use in a livestock farming sub-enterprise to entity X?

Answer

Your sale of livestock and fodder that you use in a livestock farming sub-enterprise to entity X will be subject to GST unless:

Question 4

Will your sale of plant and equipment to entity Y be subject to GST?

Answer

Yes.

Question 5

Will your sale of plant and equipment to entity Z be subject to GST?

Answer

Yes.

Question 6

Will GST be payable on your sale of plant and equipment to another land buyer (someone other than entity X, entity Y or entity Z)?

Answer

Your sale of plant and equipment that you use in a livestock farming sub-enterprise to another land buyer will be subject to GST unless:

Your sale of plant and equipment that you used solely in a crop farming sub-enterprise to another land buyer will be subject to GST.

Question 7

Will GST be payable on your sale of livestock and fodder that you use in a livestock farming sub-enterprise to another land buyer?

Answer

Your sale of livestock and fodder that you use in a livestock farming sub-enterprise to another land buyer will be subject to GST unless:

Relevant facts and circumstances

You are registered for GST.

You have conducted a farming business comprising certain livestock, certain livestock and crop farming since a certain year.

You purchased sections A and B (B now lot B1 and B2) on a certain date and commenced farming from that date.

On a certain date, you purchased additional land, namely section C (now lot C1) (an adjoining section) to expand your farming business.

On a certain date, you purchased additional land, namely lot D (a nearby section although not adjoining) to further expand the farming business.

On a certain date, a portion of a facility was closed and you purchased it. That portion became part of section C, hence the change to lot C1.

The lots are located in Australia.

You have owned sections A, B1, B2 and C for a certain number of years.

You have owned lot D for a certain number of years. You have owned the facility for a certain number of years.

You no longer operate a crop farming business on the land.

You lease lots A, B1, B2 and C to a commercial crop farmer who grows crops on these lots.

You lease lot D to a commercial crop farmer who carries on a crop farming business on the land.

You still hold livestock on the land.

You intend to retire from farming.

You have been in contact with adjoining landowners and are currently having discussions with three adjoining landowners who have expressed an interest in purchasing the property in either whole or part. All conduct farming businesses on their landholdings that adjoin yours. These entities are entity X, entity Y and entity Z. These entities are GST registered.

You anticipate the following alternative scenarios:

Farming business activities are currently being carried on on the lots. Farming business activities have been carried on on the lots for the period of at least 5 years immediately preceding the present. The lessees will continue to carry on their crop farming businesses on the land up to the time of sale of the lots.

You rotate your certain type of livestock between the five lots.

You may hold a certain type of livestock on the land up to the time of settlement of sale of the last lot that you sell - this will depend on whether there is enough room on the lot.

You use fodder in your livestock farming enterprise.

If you supply livestock to a land buyer, you will also supply fodder to them.

The purchasers of the lots will intend that a farming business be carried on on the lots after sale to them.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 section 38-325

A New Tax System (Goods and Services Tax) Act 1999 section 38-480

Reasons for decisions

Question 1

Summary

You will make a GST-free supply of farmland under section 38-480 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Detailed reasoning

GST is payable on taxable supplies. GST is normally payable by the supplier.

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 meet the requirements of section 9-5 of the GST Act because;

Therefore, what remains to be determined is whether the sale of the property is GST-free or input taxed.

In accordance with section 38-480 of the GST Act, the sale of farmland is GST-free if:

The farming business carried on before sale need not be carried on by the vendor. The farming business carried on after sale need not be carried on by the buyer.

In accordance with Goods and Services Tax Determination GSTD 2011/2 a 'farming business' can be carried on for the purposes of paragraph 38-480(a) of the GST Act where there has been a cessation of routine farming activities by the supplier for a period of time in anticipation of a sale.

In your case, farming businesses will have been carried on on the land for at least the period of 5 years preceding the supply. Hence, you meet the requirement of paragraph 38-480(a) of the GST Act.

The buyer will intend that a farming business be carried on on the land. Hence, you meet the requirement of paragraph 38-480(b) of the GST Act.

As you meet both requirements of paragraph 38-480 of the GST Act, you will make a GST-free supply of farm land. Therefore, you will not make a taxable supply of the farmland when you sell it. Hence, GST will not be payable on the sale of the farmland (whether sold together or in multiple transactions).

Questions 2 to 7

Summary

In certain circumstances, your supplies of some of these items would be part of a GST-free supply of a going concern.

Detailed reasoning

You meet the requirements of section 9-5 of the GST Act because;

There are no provisions of the GST Act under which your supplies of these items will be input taxed.

Therefore, what remains to be determined is whether the sale of these items will be GST-free.

A supply of a going concern is GST-free if it meets the requirements of subsection 38-325(1) of the GST Act. There are no other provisions of the GST Act under which your sales of the items could be GST-free.

Subsection 38-325(2) of the GST Act states:

A supply of a going concern is a supply under an arrangement under

which:

Subsection 38-325(1) of the GST Act states:

The *supply of a going concern is GST-free if:

Paragraphs 74, 80, 149 and 150 of Goods and Services Tax Ruling GSTR 2002/5 provide guidance on determining whether the supplier of the enterprise supplies to the purchaser all of the things that are necessary for the continued operation of the supplier's enterprise. They state:

In accordance with paragraphs 154, 170 and 177 of GSTR 2002/5, things used in an enterprise up to the time of sale of the enterprise as a going concern, but which are not essential for the continued operation of the enterprise can form part of the supply of the going concern.

The things necessary to continue operating your farming enterprise are;

In order for there to be a continuation of the farming enterprise after sale, you must be operating the enterprise up to the time of sale.

You will supply all of the things necessary for the continued operation of one of your livestock farming sub-enterprises if:

You will meet the requirement of paragraph 38-325(2)(a) of the GST Act under such circumstances.

Where you supply to the land buyer only some of the plant and equipment that is necessary to continue operating one of your livestock farming sub-enterprises because the land buyer already owns all or much of the necessary plant and equipment, you will not meet the requirement of paragraph 38-325(2)(a) of the GST Act because the supplier of the enterprise must supply to the purchaser all of the things necessary for the continued operation of the supplier's enterprise.

You will meet the requirement of paragraph 38-325(2)(b) of the GST Act if you continue to carry on the enterprise up to the time of settlement of sale of the property.

Where you meet the requirements of paragraphs 38-325(2)(a) and 38-325(2)(b) of the GST Act, you will make a supply of a going concern.

Where you sell your farming enterprise as a going concern, you will meet the requirement of paragraph 38-325(1)(a) of the GST Act.

Where the buyer is registered for GST, you will meet the requirement of paragraph 38-325(1)(b) of the GST Act.

Where you and the buyer agree in writing that the sale of your farming enterprise is a supply of a going concern, you will meet the requirement of paragraph 38-325(1)(c) of the GST Act.

Therefore, you will make a GST-free supply of a livestock farming sub-enterprise as a going concern where:

Where you make a GST-free supply of a going concern, you will not make a taxable supply of the things that make up that GST-free supply, for example, plant and equipment. Therefore, GST will not be payable on your supply of the things that make up the GST-free supply of the going concern.

Where your sale of plant and equipment, livestock or fodder is not part of a GST-free supply of a going concern, your sale of these items will be subject to GST because all of the requirements of section 9-5 of the GST Act will be met.

You will not make a GST-free supply of a crop farming going concern, because you have ceased to operate a crop farming enterprise. The plant and equipment you used only in the crop farming enterprise will not be essential for the continued operation of the overall farming enterprise that may be operating at the time of sale of this plant and equipment and you will not be using this plant and equipment in that enterprise up to the time of sale. Hence, your sale of this plant and equipment will not form part of a supply of a going concern. Therefore, the sale of plant and equipment that you used only in your crop farming enterprise will not be GST-free under section 38-325 of the GST Act.

You will need to separately consider whether you are making a GST-free supply of a going concern to each land buyer.

Where you are not making a GST-free supply of a going concern to a particular land buyer, your sale of the land to the buyer will still be GST-free under the farmland exemption.

Possible change in legislation

The government is proposing to change the GST Act so that a sale of farmland that meets the requirements of section 38-480 is no longer GST-free, but will be subject to GST. If the proposed amendments are passed, GST will be payable on such sales, but the GST will be reversed charged to the buyer, which means that the buyer will be liable to pay the GST to the Australian Taxation Office.

A similar change is proposed for sales of going concerns that are GST-free under section 38-325 of the GST Act.

It is not known if the proposed amendments will be passed and if so, when. However, it is likely that the proposed amendments, if passed, will take effect from a date in the 2014 calendar year

If these amendments are passed and the amendments have effect in respect of your sales to the land buyers, you will no longer be able to rely on this ruling.


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