Edited version of private ruling

Authorisation Number: 1011814334527

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Ruling

Subject: GST and sale of farmland

Question 1

Is the sale of your farmland a GST-free supply under section 38-480 of the GST Act?

Answer

Yes, the sale of farmland is GST-free provided the recipient intends to carry on farming activities.

Relevant facts and circumstances

Your agent wrote in on your behalf. He advised us of the following facts:

You own a property which you acquired in 200X.

The dwelling is a three bedroom house, in relatively poor condition, approximately 20 years old.

You are registered for GST, and have been carrying on a Livestock Farming Enterprise..

You have been agisting livestock on the property since its acquisition,. Agistment income ranges between $7000 and $15000 per annum.

There has been a farming business carried on, on the land for the period of at least the past five years. There has been numerous owners of the livestock you have agisted, who have been conducting a dairy farming business.

You have been advised that the intending purchaser of the property intends to carry on farming activities.

Reasons for decision

Subsection 38-480 of the 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 *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.

Subsection 38-475(2) of the GST Act provides the following:

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

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

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

3. manufacturing dairy produce from raw material that the entity produced; or

4. planting or tending trees in a plantation or forest that are intended to be felled.'

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

You should have 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. Usually this will require you to ask the purchaser whether or not it has an intention to carry on a farming business. In most cases, if you obtain a written statement or warranty from the purchaser stating the purchaser's intention to carry on a farming business, you will be able to demonstrate that you have made a reasonable enquiry regarding the purchaser's intention, unless you have reason to believe the information is incorrect.

You have advised that the purchaser intends that a farming business be conducted, on the land. If you have a written statement from the purchaser stating its intention that a farming business be conducted, on the land, then this requirement of the GST Act will be satisfied.

Land includes all things attached to the land so as to form fixtures. This would include residential premises, fences, 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. The supply of your land including the residential premises will be GST-free. You will not be liable for GST on a GST-free supply and you will be entitled to claim input tax credits for GST paid on acquisitions related to making that supply.

An accepted definition of agistment is provided in 2 Halsbury's Laws (4^th ed.) paragraph 214, as:

'A contract of Agistment arises where one man, the agistor, takes another man's cattle, horses or other animals to graze on his land for reward, usually at a certain rate per week, on the implied term that he will redeliver them to the owner on demand'

Where agistment is the main or only service provided, this will not constitute a farming business as defined in section 195 of the GST Act. Therefore, the provisions of subdivision 38-O of the GST Act which rely on the existence of a farming business will not apply to a business involving only agistment.

The important factor to consider, in determining whether a supply of farm land is GST-free under section 38-480 of the GST Act, is the use of the land as opposed to the ownership of it. Therefore, as long as farming business is conducted on the land for at least the 5 years immediately before the sale, the requirement in paragraph 38-480(a) of the GST Act is satisfied, regardless of who has been conducting the farming business for that 5 year period. Likewise, the recipient of the supply need only intend that a farming business be carried on, on the land. They are not required to carry on a farming business themselves in order to satisfy the requirement in paragraph 38-480(b) of the GST Act.

In conclusion, as the provisions of section 38-480 of the GST Act are satisfied, the sale of your farmland will be a GST-free supply.