Edited version of private ruling

Authorisation Number: 1011667123892

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Ruling

Subject: GST and purchase of land

Question

Is the supply of the land to you a taxable supply for the purposes of paragraph 11-5(b) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the supply of the land to you is not a taxable supply for the purposes of paragraph 11-5(b) of the GST Act.

Facts

You are an individual and have signed a contract of sale to purchase the land.

The vendor of the land is registered for GST and carries on a farming business on the land.

The land being purchased is zoned rural and is part of a large property used by the vendor to run their farming activities.

The land being purchased is currently being used to grow a crop and livestock grazing.

You advise that a crop has been in place on the land ever since the vendor purchased their farm, over five years ago.

The vendor is aware of your intentions to commence carrying on a farming business.

After settlement you will commence preparing the soil for planting trees. The first building to be erected on the land will be a harvesting shed.

If the crop on the land is not harvested prior to settlement you will have no entitlement to the crop. While not covered in the contract of sale, you and the vendor have an understanding that the vendor maintains the right to harvest the current crop and its proceeds.

You and the vendor also have an understanding that the vendor can keep grazing their livestock on the land until you require it - this is by personal arrangement.

You have recently applied for GST registration and have not yet received an Australian Business Number (ABN) from the Australian Taxation Office (ATO).

Reasons for decision

Under section 11-20 of the GST Act, you are entitled to claim GST paid on any creditable acquisitions made.

Section 11-5 of the GST Act provides when a creditable acquisition is made. One of the requirements for a creditable acquisition is the supply of the thing to you (the recipient) is a taxable supply (paragraph 11-5(b) of the GST Act).

Under section 9-5 of the GST Act you make a taxable supply if:

· you make the supply for consideration;

· the supply is made in the course or furtherance of an enterprise that you carry on;

· the supply is connected with Australia; and

· you are 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.

For a supply to be a taxable supply all the requirements listed in section 9-5 of the GST Act must be satisfied.

From the information received, the vendor will satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act as:

· the vendor makes the supply of the land to you for consideration;

· the supply is made in the course of an enterprise (business) that the vendor carries on in Australia;

· the supply is connected with Australia as the land is located in Australia; and

· the vendor is registered for GST.

However, the supply of the land is not a taxable supply to the extent that it is GST-free or input taxed. There is no provision under the GST Act that makes the sale of this land input taxed.

GST-free

Section 38-480 of the GST Act allows a supply of farm land to be GST-free in certain circumstances and states:

38-480 Farm land supplied for farming

The supply of a freehold interest in, or the lease by an *Australian government agency of or the *long term lease 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.

(*denotes a defined term in section 195-1 of the GST Act)

Therefore, for the sale of farm land to be GST-free, all the above requirements must be satisfied.

We shall now consider whether the supply of the land to you is GST-free under section 38-480 of the GST Act.

Supply of freehold interest

As per the contract of sale you provided, the vendor is supplying the land to you. This is a supply of freehold interest in land.

Paragraph 38-480(a) of the GST Act

In this case, the vendor has been carrying on a farming business on the land for over 5 years. The vendor will therefore satisfy paragraph 38-480(a) of the GST Act, since a farming business has been carried on for at least the period of 5 years preceding the supply.

Paragraph 38-480(b) of the GST Act

You advise that over the next three years you plan to grow various types of fruit trees. After settlement of the contract of sale for the land you will commence preparing the soil for planting the fruit trees.

You have advised that the vendor is aware of your intention to commence growing fruit trees.

Based on the above, the requirements of paragraph 38-480(b) of the GST Act will be satisfied.

Summary

Based on the information provided, the supply of the land to you will be a GST-free supply as all the requirements of section 38-480 of the GST Act will be satisfied.

Accordingly, as this supply is GST-free, the supply is not a taxable supply to you for the purposes of paragraph 11-5(b) of the GST Act.

For more information on sale of farm land please refer to Issue 6 in the Primary Production Industry Partnership Issue Register which is available at the ATO's website at www.ato.gov.au.