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Ruling

Subject: GST & the supply of farmland and water access licences

Question 1

Is the entity making a GST-free supply under section 38-480 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it sells its farm land and buildings?

Answer

Yes

Question 2

Is the entity making a GST-free supply under subdivision 38-I of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it sells its water access licences?

Answer

Yes

Relevant facts and circumstances

The members of the entity placed the company into voluntary administration and appointed a liquidator.

Under a contract for sale, the entity sold the following assets to Company A:

· Farm land and buildings

· Water access licences

The farm land comprised three properties.

The entity used each property for the period from the acquisition date until administration solely for carrying on a farming business of livestock grazing and growing crops (farming business).

All improvements made to the land are used in connection with the farming business.

Annexure A refers to the following improvements:

· Dwelling and outbuildings

· 6 bay farm shed

· Water tanks

Annexure A also refers to the following inclusions:

· All fixtures in the Dwelling and outbuildings

· Sets of livestock yards

· Pumps and pump housing

A farming business of livestock grazing and growing crops has been operated on the land.

During previous financial years (five plus years), the entity has made a profit from livestock trading operations.

The farming business has continued under the liquidators direction and will continue until the sale of the property settles.

The settlement date is to be the later of 42 days after the contract date or the date 7 days after the Vendor's solicitor notifies the Purchaser's solicitor that the vendor is the only Registered Proprietor of the Folio Identifier. At this time, Company A intends to operate a farming business on the land.

Annexure B attached to your Private Ruling Application contains a statement from Company A outlining the intention of Company A to have a farming business (primarily livestock grazing) operating on the property immediately upon completion of the Contract. It further states that Company A has entered into discussions with the shareholders of the entity to continue operating their existing farming business on the Property and from completion of the Contract. However, if agreement is not reached with the shareholders, Company A will make alternative arrangements to ensure that a farming business is operated on the property.

The entity owns 5 water access licences which it sold to Company A. These licences provide the owner the right to extract water from the river to use on the farm land.

You have attached the following documentation to your application:

· Annexure A - Contract for sale of land detailing the Folio Identifiers, Water Access Licences, Schedule of improvements and Schedule of inclusions;

· Annexure B - Notice of intent to carry on a farming business on the property from Company A.

Relevant legislative provisions

A New Tax System (Goods and Services Tax)Act 1999 S9-5,

A New Tax System (Goods and Services Tax)Act 1999 S9-30(1)(a)&(b),

A New Tax System (Goods and Services Tax)Act 1999 S38-480 and

A New Tax System (Goods and Services Tax)Act 1999 S38-285.

Reasons for decision

Question 1

Subdivision 38-O of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) allows the supply of farm land to be GST-free in certain circumstances. Section 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 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.

In this case, the entity has been carrying on a business of livestock grazing and growing crops on the land. The entity has been carrying on that business for a period of 5 years preceding the sale (supply). As such, it is necessary to determine whether the entity's grazing activities and growing of crops amounts to a 'farming business' as per the first requirement in section 38-480 of the GST Act.

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.

For a period of 5 years prior to the sale of the property, the entity has made a profit from cattle trading operations. This activity falls within the definition of 'farming business' in paragraph 38-475(2)(b) of the GST Act. As such, a 'farming business' has been carried on for at least a period of 5 years preceding the supply as per the requirement in paragraph 38-480(a) of the GST Act.

Pursuant to the second requirement in section 38-480, Company A, the recipient of the supply, has confirmed its intention to conduct a farming business (primarily livestock grazing) on the property. Company A has entered into discussions with the shareholders of the entity to continue operating their existing farming business on the Property on and from completion of the Contract. If agreement is not reached with the shareholders of the entity, Company A will make alternative arrangements to ensure that a farming business is operated on the property.

Accordingly, the requirement in paragraph 38-480(b) of the GST Act is also satisfied.

You have also advised that the following improvements are included in the sale of the farmland:

· Dwelling and outbuildings

· 6 bay farm shed

· Water tanks

In addition to the above, the Contract of sale includes the following items:

· All fixtures in the Dwelling and outbuildings

· Sets of cattle yards

· Pumps and pump housing

The Primary Production Industry Partnership - issue register, discusses Farm Land under issue 6.2. It provides that land includes all fixtures attached to the land. The standard test for determining whether an object is a fixture is whether the object was affixed to the land with the intention of becoming a permanent feature of that land. This would include residential premises, fences, shearing 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 are met.

As the requirements in section 38-480 of the GST Act are satisfied, the entity is making a GST-free supply of farm land, including the improvements and inclusions, when it disposes of the subject property.

Question 2

Paragraph 9-30(1)(a) 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. Further, Paragraph 9-30(1)(b) applies to make a supply of a right to receive a supply that would be GST-free under paragraph (a), GST-free.

Goods and Services Tax Ruling GSTR 2000/25, Goods and services tax: GST-free supplies of water, sewerage and sewerage-like services, storm water draining services and emptying of a septic tank (GSTR 2000/25), explains the Commissioner's view of what activities are covered by the relevant supplies in Subdivision 38-I.

Paragraph 25 of GSTR 2000/25 provides:

Supply of a right to receive a GST-free supply of water

25. Paragraph 9-30(1)(b) applies to make the supply of a right to receive a supply of water GST-free. A supply of a right to receive a supply of water includes:

· a right to receive a supply of a quantity of water; or

· a right to receive a supply of water for a specified period; or

· a tradeable right to receive a supply of water.

Where a recipient of a right to receive a GST-free supply of water trades that right, for example, by making a supply of the right to a third party, that supply is also GST-free.

In your case, the entity owned 5 water access licences which it has sold to Company A. These licences provide the owner the right to extract water from the river to be used on the farm land.

The supply of the 5 water access licences is GST-free under paragraph 38-325(1) of the GST Act pursuant to paragraph 9-30(1)(b) of the GST Act.