Edited version of your private ruling

Authorisation Number: 1012503582676

Ruling

Subject: GST and sale of farmland

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 farmland to an entity who intends that a farming business will be carried on, on the land?

Answer

Yes, the entity is making a GST-free supply under section 38-480 of the GST Act when it sells farmland to an entity who intends that a farming business will be carried on, on the land.

Relevant facts and circumstances

· You are registered for goods and services tax (GST).

· The farm was acquired by the entity in 19XX. There are no buildings or outhouses on the farmland with only water troughs, fenced stockyards and loading ramps for livestock. The use of the farm has always been to house livestock and grow crops. The current farm manager has confirmed that since commencement with you the farm has always been used for growing crops and grazing livestock.

· The farmland is divided into paddocks. Generally one to two paddocks each year will be used for propagating and cultivating crops. The crops are left to grow to optimum lengths, then harvested and dried as required and made into feed for the livestock in the summer months.

· The other paddocks are used to house livestock.

· The entity is in the business of selling and purchasing livestock each year. The purchase and sale of livestock occur through a sale yard. At times, the entity also buys weaned livestock to fatten them up for the purposes of re-sale.

· The farm is currently on the market for sale and there is hope to sell in the next few months. The entity will draft up special conditions to be attached to the formal offer and acceptance agreement to require that a written statement or warranty from the purchaser stating their intention to continue carrying on a farming business on the farm. Should the written statement or warranty come back indicating no intention of continuing a farming business on the farm, then the entity is fully aware that the sale cannot be treated as GST-free. However should a written statement or warranty be provided indicating intention to continue carrying on a farming business on the farm then the entity would like to confirm the sale will be considered GST-free under section 38-480 of the GST Act.

Relevant legislative provisions

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 38-475(2)(a)

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

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

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

Reasons for decision

Section 38-480 of the GST Act provides that the supply of a freehold interest in land is GST-free if:

· the land is land on which a farming business has been carried on for at least the period of five years preceding the supply; and

· 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.

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 ....'

On the facts provided, the entity carries on a business of growing crops, grazing livestock and selling livestock. This activity falls within the definition of 'farming business' in paragraphs
38-475(2)(a) and 38-475(2)(b) of the GST Act. As such, a 'farming business' has been carried on for at least the period of five years preceding the supply as per the requirement in paragraph
38-480(a) of the GST Act.

Furthermore, paragraph 38-480(b) of the GST Act requires that the recipient intend that 'a farming business' be carried on. If the recipient does not intend that a farming business be carried out on the land then the supply will not be GST-free.

The entity have provided that they will draft up special conditions, to be attached to the formal offer and acceptance agreement, to obtain a written statement or warranty from the purchaser stating their intention to continue carrying on a farming business on the farm. Should the written statement or warranty come back indicating that there is no intention of continuing a farming business on the farm, then the entity is fully aware that the sale cannot be treated as GST-free.

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.

Therefore, the entity's supply of the farm will be a GST-free supply under section 38-480 of the GST Act when it is sold to an entity who intends that a farming business will be carried on, on the land.