Edited version of your written advice

Authorisation Number: 1012864030404

Date of advice: 25 August 2015

Ruling

Subject: GST and sale of farmland

Question

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

Answer

Your sale of the property is a mixed supply. The supply of the portion of the property that is used for farming business is GST-free under section 38-480 of the GST Act. The supply of the portion of the property that contains the residential premises used for your leasing enterprise is input taxed under section 40-65 of the GST Act.

Relevant facts and circumstances

You are registered for GST.

The property is X acres. It contains a house, including a garage and a shed, which is leased. The portion of the property containing the house, the garage and the shed is less than one acre and is used by the tenant for private purposes. The tenant has no involvement in farming.

You purchased the property in 20XX.

The previous owners used the property for farming until the completion of the sale to you.

You used the property for cropping under a share farming agreement with another entity. The agreement began in 20XX and continued until the day of supply.

You sold the property in 20YY.

You treated the supply of the property (excluding the house) as a GST-free supply of farmland under section 38-480 of the GST Act. The purchaser gave a warranty that it intends that a farming business will be carried on, on the property.

The house was supplied with the lease. You treated the supply as input taxed under section 40-65 of the GST Act.

You treated the supply of the floor coverings, window furnishings, light fittings and fixtures that form part of the residence as a taxable supply under section 9-5 of the GST Act.

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 and

A New Tax System (Goods and Services Tax) Act 1999 section 40-65.

Reasons for decision

An entity is liable to pay GST on any taxable supply that it makes

Section 9-5 of the GST Act states:

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 the indirect tax zone; 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.

You supplied the property for consideration. The supply was made in the course of an enterprise carried on by you. The supply was connected with the indirect tax zone as the property is located in Australia. You are registered for GST. All the requirements in paragraphs 9-5(a) to 9-5(d) of the GST Act are satisfied.

Therefore, the supply of the property is a taxable supply unless it is GST-free or input taxed.

Under section 38-480 of the GST Act, the supply of 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.

Carrying of a 'farming business' is defined in subsection 38-475(2) of the GST Act to include carrying on a business of cultivating or propagating plants, fungi or their products or parts (including seeds, spores, bulbs and similar things), in any physical environment.

Farming business carried on for at least the period of 5 years preceding the supply

Paragraph 38-480(a) of the GST Act is satisfied where farming has been carried on for 5 years without any break except for temporary cessation of the daily activities.

You were carrying on a farming business on the property under a shared farming agreement. The agreement began in 20XX and continued until the day of supply. Prior to this, the previous owners of the property used it for farming until the day you acquired the property. As such, the farming business is carried on for at least the period of 5 years until the day of supply. The requirement in subsection 38-480(a) of the GST Act is satisfied.

Recipient intends that a farming business be carried on

Paragraph 38-480(b) of the GST Act is satisfied where there is evidence of the purchaser's intention that a farming business be carried on, on the land.

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.

The purchaser gave a warranty that it intends that a farming business be carried on, on the property. In such case, the requirement in paragraph 38-480(b) of the GST Act is satisfied.

Therefore, the sale of the property is a GST-free supply of farmland.

Supply of the house

It is recognised that, generally, there will be some private use of farmland. Provided that the private use is not so significant that the land loses the essential characteristics of farmland, section 38-480 of the GST Act may continue to apply.

In this case, however, you were using the residential premises (including the garage and the shed) in a leasing enterprise that you were carrying on. The tenant was not involved in any way in the farming activities carried out on the property. Furthermore, you supplied the residential premises with the lease.

We consider that the supply of the house together with the garage, the shed and the surrounding land leased to the tenant is an input taxed supply of residential premises under section 40-65 of the GST Act.

Supply of the goods that form part of the house

The supply of the floor coverings, window furnishings, light fittings and fixtures that form part of the house is input taxed on the basis that the supply of the house is considered above as an input taxed supply of residential premises.