Edited version of your written advice

Authorisation Number: 1051421285922

Date of advice: 28 August 2018

Ruling

Subject: Sale of farm land

Question

Is the sale of farm land GST-free?

Answer

Yes. The sale of farm land is GST-free.

Relevant facts and circumstances

● The trustee of a deceased estate is selling land on which a farming business has been carried on for the last five years.

● The deceased was not registered or required to be registered for the goods and services tax (GST).

● The Trustee for the deceased estate is not registered for GST.

● The valuation report provided to us indicates that the property lies within both “Rural Conservation” and “Farming Zones”.

● The whole of the land has been used for farming business purposes and has been used for animal grazing for the purpose of selling them and agistment activities for profit continuously for five years immediately before the sale.

● The value of the land used for farm business purposes is 100% in relation to the total value of the land.

● The area of land used for farm business purposes in relation to the total area of land is100%.

● The agistment activities are profit making focus.

● The land has been treated as farmland for accounting purposes.

● The Notice of Valuation, Rates, Charges & Levy from the relevant City indicates that the rates are calculated as “farm rate”.

● During a small period of winding up the Deceased Estate, the beneficiaries did not know if the farmland was to stay in the family. Other party and/or the family were not there to run the farm. But it was, is and still remains a farmland and only ever carried out farmland activity, such as sheep grazing on the land for sale.

Relevant legislative provisions

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

Reasons for decision

1. Section 38-480 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that the supplies of farmland will be GST-free if two requirements are met. The requirements are:

● the land is land on which a farming business has been carried on for at least five (5) years preceding the supply; and

● the recipient of the supply intends that a farming business be carried on, on the land.

In this case, the recipients of the supply (the purchasers) intend to carry on a farming business upon the land. Therefore, it must be determined if a farming business has been carried on for at least the period of five years immediately preceding the supply where there has been a break in the farming activities due to the winding up of the deceased's estate.

The term 'farming business' is to be distinguished from the term 'farming activity'. A farming business includes farming activities such as maintaining animals for the purpose of selling them or their bodily parts (including natural increase).

In this case you informed us that during a small period of winding up the Deceased Estate, the family did not know if the farmland was to stay in the family. Other party and/or the family were not there to run the farm. But the land was, is and still remains a farmland and only ever carried out farmland activity, such as sheep grazing on the land for sale.

A temporary cessation in farming activities, for example in the event of winding up of the deceased's estate would not normally preclude the operation of section 38-480 of the GST Act.

The following paragraphs have been reproduced from ATO ID 2001/779:

Although the farming activities have ceased during the period of the administration of the estate, it is necessary to determine whether the farming business is still being carried on during this time.

The term 'carried on' is defined in section 195-1 of the GST Act to include doing anything in the course of the commencement or termination of the enterprise. Enterprise is defined in section 9-20 of the GST Act to include an activity or series of activities done in the form of a business. A farming business satisfies this definition. Therefore, a farming business is an enterprise within the meaning of the GST Act. As such, anything done in the course of the commencement or termination of a farming business, where carried out in a business like way, without unnecessary delay, is accepted as being part of carrying on the farming business.

However, it must be considered whether the duties of winding up the deceased's estate are still part of carrying on the farming business where the duties are carried out by an executor as opposed to the farmer.

Taxation Ruling IT 2622 explains that upon the death of a person, the property of the deceased passes to their estate, the legal control over which is exercised by an executor or an administrator. The executor or administrator, in effect, steps into the shoes of the deceased and winds up the deceased's personal affairs.

Therefore, it is considered that the winding up of a farming business, whether performed by the business operator themselves, or by an executor or administrator upon the death of the business operator, will still be part of carrying on the farming business.

Furthermore, it is accepted that the process leading up to the granting of probate and the stages that follow in administering the estate are necessary delays in winding up the deceased's farming business. Accordingly, although the farming activities have ceased following the death of the farmer, it is considered that the farming business is carried on continuously up until the time of sale because activities done in the cessation of a business are considered to be part of carrying on a business.

As such, the farming business is considered to have been carried on continuously for at least the period of 5 years immediately preceding the supply, regardless of the fact that there has been a temporary cessation in the farming activities due to the winding up of the deceased estate. As a result, all of the requirements of section 38-480 of the GST Act have been met.

Therefore, the sale of farm land by the executor and trustee of the Deceased Estate is GST-free where:

● the land is land on which a farming business has been carried on for at least five (5) years preceding the supply; and

● the recipient of the supply intends that a farming business be carried on, on the land.