Edited version of private advice

Authorisation Number: 1051936270217

Date of advice: 10 January 2022

Ruling

Subject: GST and the sale of farmland and going concern

Question 1

Will the supply of property 2B be a GST-free sale of a going concern under section 38-325 of A New Tax System (Goods and Services Tax) Act 1999 (GST ACT)?

Answer

Yes

Question 2

Wil the supply of Property 1B be a GST-free supply of farmland under section 38-480 of the GST Act?

Answer

Yes

Relevant facts and circumstances

The vendor of property 1B holds an Australian Business Number (ABN) and is registered for goods and services tax (GST).

The vendor of property 2B holds an ABN and is registered for GST.

The purchaser of the properties holds an ABN and is registered for GST.

Both properties (1B & 2B) have been and continues to be used to carry on a farming business for a period of more than 5 years.

Property 2B has been leased to Party A for some time and is being sold subject to the lease and that lease will continue after the settlement of the sale to the purchaser.

Property 1B is currently being used for a farming business by party A and it is proposed that it will continue to be used for a farming business following the settlement of the sale, for an indefinite period of time.

Upon settlement of the sale the purchaser will lease the properties back to Party A the farming business will continue for the foreseeable future.

Both parties to the sale of Property 2B have agreed in writing that the sale of property 2B will be the sale of a going concern.

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 38-325

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-325(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-325(2)

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

Reasons for decision

Section 38-325 of the GST Act provides that, if certain conditions are satisfied, a supply of a going concern is GST-free. This means that, in the case of a supply which would otherwise be a taxable supply, or an input taxed supply, the supply is a GST-free supply if it is supplied under an arrangement for the supply of a going concern.

Section 38-325 of the GST Act states:

1.    The *supply of a going concern is GST-free if:

a.    The supply is for *consideration; and

b.    The *recipient is *registered or *required to be registered; and

c.     The supplier and the recipient have agreed in writing that the supply is of a going concern.

2.    A supply of a going concern is a supply under an arrangement under which:

a.    The supplier supplies to the recipient all of the things that are necessary for the continued operation of an *enterprise; and

b.    The supplier carries on, or will carry on, the enterprise until the day of the supply (whether or not as part of a larger enterprise carried on by the supplier).

All these elements must be satisfied for the supply to be a GST-free sale of a going concern.

Based on the facts of this case, as evidenced by the contract of sale and the lease agreement provided at the time of the application, the three elements in subsection 38-325(1) would be met. That is, the supply of the property will be for consideration, the purchaser is registered for GST and will remain registered at the time of the supply (settlement date) and the vendor and the purchaser have agreed in writing that the supply of the leased property will be a supply of a going concern.

Next, consideration needs to be given to whether the requirements under subsection 38-325(2) of the GST Act are satisfied.

Goods and Services Taxation ruling, Goods and services tax: when is a supply of a going concern GST-free? (GSTR 2002/5) discusses the supply of a going concern for the purposes of section 38-325 of the GST Act and explains when the supply of a going concern is GST-free.

Paragraph 29 of GSTR 2002/5 requires the identification of an enterprise being carried on by the supplier (the identified enterprise). This is the enterprise for which the supplier must supply all of the things necessary for its continued operation. Also, the supplier must carry on this enterprise until the day of the supply, whether or not as part of a larger enterprise.

Paragraphs 72 and 73 of GSTR 2002/5 explain that the things that are 'necessary' for the continued operation of an enterprise will depend on the nature of the enterprise being carried on and the core attributes of that enterprise. A 'thing' is necessary for the continued operation of an 'identified enterprise' if the enterprise could not be operated by the recipient in the absence of the thing.

In this case, the enterprise being carried on is a leasing enterprise, were the vendor leases property 2B to Party A on which he carries on his farming enterprise.

Pursuant to the contract of sale, the current lease remains in place up to and including the date of settlement and the new lease between Party A and the purchaser of property 2B commences once settlement occurs.

As a result, the supply of property 2B as detailed in the contract of sale and the supplementary evidence provided, meets the requirements of subsection 38-325(2) of the GST Act.

As the requirements of both subsection 38-325(1) & (2) are satisfied, the sale of property 2B will be a GST-free supply of a going concern.

Question 2

Subdivision 38-O of the GST Act allows the sale of farmland to be GST-free provided certain requirements are satisfied.

In particular, section 38-480 of the GST Act provides that the supply of the freehold interest in farmland is GST-free if:

•         The land is land on which a farming business has been carried on for at least 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, Party A (vendor) has been carrying on a farming business on property 1B for a period exceeding 5 years. The purchaser of property 1B intends that the farming business continue to be carried on. This will be achieved by the purchaser leasing property 1B back to Party A with the lease to commence upon settlement of the sale.

As the requirements of 38-480 of the GST Act are satisfied the sale of property 1B will be a GST-free sale of farmland.