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Ruling

Subject: GST and the supply of farmland

Question 1

Is the sale of farmland from the Trust to the recipient a GST-free supply under section 38-480 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

Relevant facts and circumstances

The Trust is registered for GST.

The Trust entered into a contract for the sale of the farm land to the recipient.

The contract for the farm land settled.

The intention of the Trust was that the supply be GST-free as it was used as farm land, however, it was treated by the agent selling the farm land on behalf of the Trust as taxable.

The Trust on requesting an amendment to the contact via a solicitor to reflect that the supply was GST-free as farm land supplied for farming found the recipient was undecided as to the purpose of the farm land and did not agree to amend the contract.

A month after settlement the recipient entered into a lease where the farm land would continue to be used as farm land.

The recipients are not registered for GST.

The Trust had prior to the sale of the farm land continually operated it as a farm since acquiring it at a particular time. Prior to the Trust holding title to the farm land it was used as farm land. Also the Trust acquired the farm land as a GST-free supply that 38-480 of the GST Act was applied to.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

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

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-475(2)

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

Reasons for decision

Section 9-5 of the GST Act is about taxable supplies and provides:

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.

The sale of the farm land would meet the above requirements of a taxable supply as you made the supply for consideration, the supply was made in the course or furtherance of an enterprise you carry on, it was connected with Australia, and you are registered for GST. However, the supply is not a taxable supply to the extent it is GST-free or input taxed.

There are no provisions that would result in the supply being input taxed but to determine if the supply is GST-free we need to examine section 38-480 of the GST Act.

Farm land supplied for farming

Section 38-480 of the GST Act provides:

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.

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

Farming business carried on for at least five years (paragraph 38-480(a)):

You've stated that the Trust had prior to the sale of the farm land continually operated it as a farm and prior to the Trust holding it was used as farm land. Also that the Trust acquired the farm land as GST-free pursuant to section 38-480 of the GST Act. Therefore, it is clear that a farming business has been carried on the farm land for at least the period of 5 years and that paragraph 38-480(a) of the GST Act is satisfied.

Intent of the recipient to carry on a farming business (paragraph 38-480(b)):

Primary Production Industry Partnership - issue register (6.2.4) provides guidance regarding the intent of the recipient and provides;

The vendor should seek evidence to demonstrate that a reasonable enquiry has been made about the purchaser's intention. What is reasonable will depend on all the circumstances. Usually this will require the vendor to ask the purchaser whether or not there is an intention to carry on a farming business. 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, the recipient of the supply need only intend that a farming business be carried on, on the land. Paragraph 38-480(b) does not require purchasers to carry on the farming business themselves.

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.

In this situation from the information provided the Trust did not make reasonable enquiry as to the purchase's intention and neither (it appears) did the agent acting for the Trust. Therefore, the requirement under paragraph 38-480(b) of the GST Act is not satisfied.

Conclusion

As it is necessary that that both paragraphs of section 38-480 of the GST Act be satisfied and the facts in this instance do not support that, section 38-480 is not satisfied and the supply of the farm land by the Trust is not GST-free but taxable.