Edited version of private ruling

Authorisation Number: 1011778479369

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Ruling

Subject: GST and sale of the farmland

Question

Is the sale of the farmland by you GST-free under section 38-480 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes. The sale of the farmland by you is GST-free under section 38-480 of the GST Act.

Facts

You are registered for goods and services tax (GST). You purchased some farmland after 1 July 2000 and the property has not contained any dwellings on it.

You grazed livestock on the farmland until a few years ago. Due to the expenses caused by the drought you did not replenish your livestock number but instead then sought out and engaged another party to agist the farmland. This party (agistee) has since been grazing their own livestock on the farmland until the present date. You have reported the agistment income in your income tax return. There has been no break between your farming business and the time the agistee commenced to agist the farmland.

You wish to sell the farmland to the agistee who intends to continue their livestock grazing activities on it.

Reasons for decision

Section 9-40 of the GST Act provides that you must pay the GST payable on any taxable supply that you make.

Section 9-5 of the GST Act 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 defined term in section 195-1 of the GST Act). 

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

Based on the information provided, you have satisfied the requirements in paragraphs 9-5(a) to

9-5(d) of the GST Act as follows:

· the supply of the farmland is for consideration

· the supply of the farmland is made in the course of the agistment business that you carry on

· the supply is connected with Australia as the farmland is located in Australia, and

· you are registered for GST.

Therefore, the sale of the farmland will be taxable to the extent that it is not input taxed or

GST-free.

There is no provision in the GST Act for the supply of farmland to be input taxed. What remains to consider is whether the supply of the farmland by you is GST-free.

GST-free supply of farmland

Section 38-480 of GST Act 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.

The phrase 'farming business' is defined for the purposes of the GST Act. Subsection 38-475(2) of the GST Act states:

An entity *carries on a farming business if it carries on a *business of:

(a) cultivating or propagating plants, fungi or their products or parts (including seeds, spores, bulbs and similar things), in any physical environment; or

(b) maintaining animals for the purpose of selling them or their bodily produce (including natural increase); or

(c) manufacturing dairy produce from raw material that the entity produced; or

(d) planting or tending trees in a plantation or forest that are intended to be felled.
If any of the above activities are carried on, on the land, as a business, then the land is considered to be used for a farming business.

Paragraph 38-475(2)(b) of the GST Act is of most relevance in your circumstances. Agisting livestock to maintain them for the purpose of selling them or their bodily produce is a farming activity.

Based on the information provided, you do not maintain the agisted livestock for the purpose of selling them or their bodily produce on the farmland.

However, for the purposes of paragraph 38-480(a) of the GST Act, it is not essential that the owner of the land carries on a farming business, the farming activity can be carried on as a business by an entity that does not own the land. What is important is the use of the land, not the ownership of it.

You advised that the farmland has been used by the agistee for grazing livestock. Prior to that, you were carrying on the business of grazing livestock on the same farmland and there was no break during the transition period. As such, a farming business has been carried on for at least a period of five years preceding the supply and the requirements in paragraph 38-480(a) of the GST Act are satisfied.

Paragraph 38-480(b) of the GST Act requires the recipient of the supply to have the intention that a farming business be carried on, on the land.

The issue of purchaser's intention is primarily the one that the vendor (you) and the purchaser must address. You should seek evidence to demonstrate that a reasonable enquiry has been made with regard to the purchaser's intention. What is reasonable will depend on all the circumstances. In most cases if you obtain a written statement or warranty from the purchaser stating their intention to carry on a farming business then you will be able to demonstrate that you have made a reasonable enquiry regarding the purchaser's intention, unless you have reason to believe that the information is incorrect.

The purchaser, who is also the agistee, has advised you that they intend to continue carrying on the livestock grazing activities on the farmland. Therefore, the requirement in paragraph 38-480(b) of the GST Act is met if you can demonstrate that a reasonable enquiry has been made regarding the purchaser's intention.

Accordingly, the supply of the farmland by you to the agistee (purchaser) is GST-free under section 38-480 of the GST Act.