Edited version of private ruling

Authorisation Number: 1011741246283

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Ruling

Subject: GST and sale of land

Question

Will the sale of your property be a taxable supply for the purposes of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the sale of your property will not be a taxable supply for the purposes of section 9-5 of the GST Act.

Relevant facts

You are registered for the goods and services tax (GST).

You acquired a property consisting of some acres of land with a large number of various types of fruit trees, a farm building, and other farm features.

You continued farming activities for some time on this property and then decided to sell it.

The property has been used for farming activities for the last ten years.

You have entered into a contract of sale last year. The contract of sale is marked to indicate that the sale of your property is fully taxable. However, this was due to an error made by the agent.

The purchaser is now insisting that you issue a tax invoice for the supply of this property at settlement.

Your representative has advised that a settlement date has not been fixed as yet and you do not intend to issue a tax invoice.

The purchaser is a farmer who currently carries on their own farming business and intends to continue the existing farming activities on the relevant property.

Reasons for Decision

Summary

As the requirements of section 38-480 of the GST Act will be satisfied, the sale of the property will not be a taxable supply for the purposes of section 9-5 of the GST Act.

Detailed reasoning

Under section 7-1 of the GST Act, GST is payable on taxable supplies that you make. 

Section 9-5 of the GST Act states that: 

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 terms defined in section 195-1 of GST Act) 

In your case, the supply of the land will be made for consideration, the supply is connected with Australia, you are registered for GST purposes and the supply will be made in the course of an enterprise that you carry on. Therefore, the supply will satisfy paragraphs 9-5(a) to (d) above and the supply of the property will be a taxable supply, unless it is GST-free or input taxed. 

Section 9-30 of the GST Act provides that a supply is GST-free if it is GST-free under Division 38 of the GST Act or under a provision of another Act, and that a supply is input taxed if it is input taxed under Division 40 of the GST Act or under a provision of another Act.

GST-free supplies

Division 38 of the GST Act deals with supplies that are GST-free. GST is not payable on a GST-free supply.

In your case, the relevant GST-free provisions that we need to consider are section 38-480 of the GST Act which deals with farm land supplied for farming and section 38-325 of the GST Act, which deals with the supply of a going concern. If your supply is able to satisfy one of the two sections mentioned above, it will be a GST-free supply for the purposes of the GST Act.

Sale of Farm-land 

The supply of real property is generally a taxable supply. However, it is possible for the sale of farm land to be GST-free if the conditions set out in section 38-480 of the GST Act are met. 

Section 38-480 states: 

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:

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.

For the supply of farm land to be GST-free, both paragraphs (a) and (b) of section 38-480 of the GST Act have to be satisfied.

A farming business must have been carried on, on the land for a minimum of five years immediately preceding the supply. If for example, a farming business was carried on for the last 20 years but in two of the five years preceding the supply there was no farming business carried on, on the land; then the supply will not be GST-free.

It is not necessary for the supplier to be the entity which carried on the farming business during the five year period preceding the supply for it to be GST-free. The important factor to consider, in determining whether a supply of farm land is GST-free, is the use of the land as opposed to the ownership of the land. Therefore, as long as a farming business is conducted on the land for at least five years immediately before the supply, and the recipient intends that a farming business be carried out on the land, the requirements to supply farm land GST-free will be met.

Further, land includes all fixtures attached to the land. For example, this would include residential premises, the stockyards and the shed. 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.

Paragraph 38-480(b) of the GST Act requires that the purchaser intends that 'a farming business' be carried on. It is not necessary for the recipient of the supply to intend for the same type of farming business to be carried on, on the land.

In your case, you have advised that you purchased the land some time ago from a supplier who had been using the land for farming business. You have been using the land for farming business since your acquisition. In addition, you have advised that the land has been used for farming activities for the last ten years. Therefore, paragraph 38-480(a) of the GST Act will be satisfied.

Further, you have advised that the purchaser is currently carrying on a farming business and that they will be continuing on the same farming activity on the land. Accordingly, the requirements of paragraph 38-480(b) of the GST Act will be satisfied.

Where the supply of the land satisfies the requirements of section 38-480 of the GST Act, the sale of the property will be a GST-free supply.

In your case, we conclude that you will be making a GST-free supply of a farm land as the requirements of section 38-480 of the GST Act will be satisfied.

As you will be making a GST-free supply of farm land under section 38-480 of the GST Act, it is not necessary to consider the application of section 38-325 of the GST Act in the given circumstances.