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Ruling
Subject: GST and sale of farmland
GST and supply of farmland
Question
Is your supply of the property a GST-free supply under section 38-480 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
Yes
Relevant facts and circumstances
You purchased the relevant property.
You are registered for GST.
You signed an agistment agreement over the entire property with another person, Mr X.
Mr X carries on a dairy and cattle breeding business and uses the property for cattle grazing purposes as part of the diary and cattle breeding business. He has informed you that he is recognised by the Australian Taxation Office as a primary producer.
You sold the property.
The purchaser has declared their intention in writing to carry on farming activities on the property.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 38-480
Reasons for decision
Note: Unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
All reference materials used in this ruling are available on the Australian Taxation Office (ATO) website www.ato.gov.au
Section 38-480 considers farmland supplied for farming, and 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:
c) 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
d) the *recipient of the supply intends that a farming business be carried on, on the land.
Note: The terms marked with an asterisk are defined in section 195-1.
Farmland:
The first requirement of paragraph 38-480(a) is that a farming business has been carried on, on the land.
A farming business is defined in subsection 475-(2). Specifically, an entity carries on a farming business if it carries on a business of one of the classes of farming listed under paragraphs (a) to (d) in the subsection.
It is not essential that the supplier of the land in question be the entity that carries on a farming business in order to satisfy the requirement that 'the land is land on which a farming business has been carried on' in paragraph 38-480(a).
You entered into an agistment agreement with Mr X for the entire land area. Mr X carried on a dairy and cattle breeding business and used the relevant land for cattle grazing purposes as part of their dairy and cattle breeding business.
We consider that Mr X carried on the activities normally associated with a farming business activity on the Property. Therefore, a farming business had been carried on on the land.
The second requirement of paragraph 38-480(a) requires that a farming business has been carried on 'for at least the period of 5 years preceding the supply'.
On the facts supplied, you have satisfied this requirement.
Paragraph 38-480(b) requires that the recipient of the supply intends that a farming business be carried on, on the land.
The Issues Register at Issues 6.2.4 and 6.2.6(a) provides the following guidelines:
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.
You have provided a written statement from the purchaser that they intend to carry on a farming enterprise on the property. Accordingly, you have satisfied this requirement.
Conclusion
As you have satisfied all of the requirements of section 38-480 of the GST Act, your supply of the property is a GST-free supply.