Edited version of private advice

Authorisation Number: 1051914417823

Date of advice: 9 December 2021

Ruling

Subject: GST - sale of land

Question

Will the sale of the Land by Entity A to Entity B be 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

Yes.

This ruling applies for the specified period.

The scheme commences on the specified date.

Relevant facts and circumstances

Entity A carries on a farming business and is registered for the goods and services tax (GST).

Entity A is the registered owner of the specified land (the Land).

Entity A acquired the Land prior to 1 July 20XX.

The Land is in Australia.

Entity A (as the Vendor) and Entity B (as the Purchaser) have executed a contract for the sale and purchase of the Land (the Land Contract).

The sale of the Land is for consideration.

Apart from very small areas leased to third parties, all of the Land is used in the conduct of primary production business of sheep and cattle farming and has only ever been used by Entity A for such activities, since its acquisition before 1 July 20XX.

The permitted use of the leased areas is only for farming and agricultural purposes.

The Land is land on which a farming business has been carried on for at least X years preceding the Settlement Date.

The Vendor will continue to carry on the farming business on the Land up to settlement date.

In accordance with the terms of the Land Contract, at the time of settlement occurring under the Land Contract, the parties will enter into a Licence to Occupy for the purpose of the Vendor continuing to carry on a farming business on the Land, following settlement.

The Licence to Occupy is required to be entered into contemporaneously with settlement occurring under the Land Contract.

The Licence to Occupy must commence on the date of settlement under the Land Contract and must be for the purpose of farming.

If the Purchaser (Licensor) wishes to terminate the licence in respect of the whole or part of the Land, the Licensor must provide the Licensee with the required months' written notice, as specified.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decision

In this reasoning, unless otherwise stated,

•         all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act),

•         all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act.

Section 38-480 of the GST Act states that the supply of a freehold interest in 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 on that land; and

(b) the *recipient of the supply intends that a farming business be carried on, on the land.

On the facts, we are satisfied that the Land would be land on which a farming business has been carried on for the last five years preceding the supply of the land at settlement date. Requirement (a) above would be satisfied.

Requirement (b) above must be satisfied having regard to the intention of the recipient of the supply.

In accordance with the terms of Licence to Occupy, the Licensor cannot terminate the Licence in respect of the whole or part of the Land, unless it provides the required months' written notice to the Licensee.

On the facts, we are satisfied that requirement (b) would also be satisfied.

Consequently, the sale of the Land by Entity A to the Entity B will be a GST-free supply of farmland under section 38-480 of the GST Act.