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Edited version of your written advice
Authorisation Number: 1012830739676
Date of advice: 26 June 2015
Ruling
Subject: Goods and services tax (GST) and the sale of farm land
Question
Is GST payable on your sale of the property?
Answer
No.
Relevant facts and circumstances
You are registered for GST.
You own a property located in Australia (the property).
You purchased the property more than 5 years ago.
The land is zoned 100% primary production/farming use.
There are various agricultural related buildings and structures and a farm house on the land. During your period of ownership of the property, these structures have been repaired, painted and restored to improve their working condition.
Fencing has been erected on the property during your period of ownership.
You will sell the property to a purchaser who intends to carry on a farming business on the land.
Your real estate agent advertised the property for sale as farm land.
You lease the property to a partnership. The partnership receives income from external parties who graze their livestock on the land. The external parties have been carrying on businesses of maintaining livestock for the purpose of their sale and sale of their produce. This arrangement has been in place since you purchased the property and will continue up to the time of settlement of sale of the property.
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 38-480
Reasons for decision
Summary
GST will not be payable on your sale of the property because:
• 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.
Detailed reasoning
GST is payable by you where you make a taxable supply.
You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states:
You make a taxable supply if:
(a) you make the supply for *consideration; and
(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and
(c) the supply is *connected with Australia; and
(d) 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.
(*Denotes a term defined in section 195-1 of the GST Act)
In your case, you will satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. This is because:
• you will supply the property, by way of sale, for consideration.
• you will supply the property in the course or furtherance of your leasing enterprise
• the sale will be connected with Australia (as the property is located in Australia), and
• you are registered for GST.
There are no provisions in the GST Act under which your sale of the property will be input taxed.
Therefore, what remains to be determined is whether the sale will be GST-free.
GST-free sales of farmland
Section 38-480 of the GST Act provides that a sale 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.
In accordance with issue 6.2.7 of the Primary Production Industry Partnership - issues register, for the purposes of paragraph 38-480(a) of the GST Act, it does not matter who carries on the farming business. It need not be the vendor.
In accordance with paragraph 3 of Goods and Services Tax Determination GSTD 2011/2, the definite article 'the' in the expression 'the period of five years' in paragraph 38-480(a) indicates that the period in which a farming business must be carried on, on the land, is a continuous period of five years immediately before the supply of the land.
The property in your case is land on which a farming business will have been carried on for at least the period of 5 years immediately preceding the sale. Therefore, the requirement of paragraph 38-480(a) of the GST Act is met.
The purchaser intends that a farming business be carried on on the land after sale to them. Therefore, the requirement of paragraph 38-480(b) of the GST Act is met.
As all of the requirements of section 38-480 of the GST Act are met, the sale of the property is GST-free.
Therefore, GST is not payable on the sale.
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