Edited version of private advice

Authorisation Number: 1052165017374

Date of advice: 5 September 2023

Ruling

Subject: GST and the sale of subdivided farmland

Question 1

Is the proposed sale of land a GST-free supply of farm land under Subdivision 38-O of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes

Question 2

If the sale of land is not GST-free, can the sale proceeds be apportioned between a GST-free and taxable supply?

Answer

Unnecessary to answer.

The scheme commences on:

The date of issue of this private ruling.

Relevant facts and circumstances

You purchased land with settlement occurring in 20XX.

You intended to subdivide and on sell lots.

At the time of purchase, you had a 'handshake' agreement with a neighbour that allowed them to use your land for agistment to graze their livestock.

There was no financial benefit or exchange of funds to this agistment agreement, however, the owners of the livestock have incurred costs relating to maintaining the boundary fences and gates and spraying noxious weeds as agreed upon.

You began the subdivision of the lots in preparation for sale in 20XX.

Sale of the first lots occurred in 20XX quarter tax period with sales of most lots completed by 20XX quarter tax period.

Contract of sales for the lots show that all have been sold GST-free stating the sale is subdivided farmland or farmland supplied for farming under Subdivision 38-O.

On 20XX, you have entered into a formal agistment agreement with Partnership X for the agistment of sheep to graze on the land owned by you.

The agreement remains in place while you still hold title on the remaining lot.

You have incurred construction costs between 20XX and 20XX on the remaining lot building a farm residence comprising five bedrooms with ensuites, water tanks and a work and storage shed.

You will sell the remaining lot with the farm residence and agistment agreement in place.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Division 135

Reasons for decision

Paragraph 38-480(a) requires that a farming business had been carried on for at least the period of 5 years preceding the supply. Goods and Services Tax Determination GSTD 2011/2 Goods and services tax: can a 'farming business' be carried on, for the purposes of paragraph 38-480(a) of the A New Tax System (Goods and Services Tax) Act 1999, where there has been a cessation of routine farming activities by the supplier for a period of time as a consequence of a decision to sell the land? (GSTD 2011/2) discusses that this requirement means a continuous period of five years immediately before the supply of the land.

In this case, the wording of the agreement drafted in 20XX would indicate that the 'farming business' on each of the lots did not cease and continued to be used in the operation of Partnership's farming business until each lot sold. The agreement states:

'On 20XX the Land was subdivided by Deposited Plan and some of the lots in that Deposited Plan have been, and continue to be, sold. The agreement remains in place for the lots that remain owned by you.'

Also as discussed, in relation to determining whether a recipient 'intends that a farming business be carried on, on the land', item 6.2.4 of the Primary Production Issues Register discusses this issue, stating in part:

'In most cases if the vendor obtains a written statement or warranty from the purchaser stating the intention is that a farming business be carried on, then the vendor will be able to demonstrate that it has made a reasonable enquiry about the purchaser's intention, unless the vendor has reason to believe the information is incorrect.'

As such, providing the recipient of the sale of Lot X intends that a farming business be carried on, on the land, it will be a GST-free supply of farm land under s38-480.

Land includes all fixtures attached to the land. The standard test for determining whether an object is a fixture is whether the object was affixed to the land with the intention of becoming a permanent feature of that land. This would include residential premises, fences, shearing sheds, workers cottages and dams. Since fixtures form part of the land, they will be included in the GST-free supply where the requirements of section 38-480 of the GST Act are met.

Division 135 of the GST Act requires the recipient of a GST-free supply of farmland to make adjustments, where the recipient changes the use of the land from farming to another use which involves supplies which are not solely taxable or GST-free.

Provided that the land maintains the essential characteristics of farmland, there will be no requirement to make any adjustment under Division 135 of the GST Act.

Conclusion

The sale of Lot X will be GST-free and there is no requirement to apportion any part of the supply.

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