Edited version of private advice

Authorisation Number: 1051978811534

Date of advice: 17 May 2022

Ruling

Subject: Sale of farmland

Question

Will the supply of the Property be a GST-free supply of farmland in accordance with section 38-480 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes. The supply of the Property will be a GST-free supply of farmland under section 38-480 of the GST Act.

This ruling applies for the following period:

Financial year ending 30 June 20XX

The scheme commences on:

The date this ruling is issued

Relevant facts and circumstances

The Trust owns a property which is approximately xxx hectares in size.

The Property is divided up into eight main paddocks and several smaller holding paddocks.

The infrastructure of the Property includes a large hay shed, other general-purpose shedding, cattle yards, a dam and fencing. The Property does not contain any residential premises.

The Property is being marketed for sale as farmland.

The Property is expected to sell for approximately $xxx. It is expected that the purchaser will either farm the Property themselves or lease the property to a farmer who will farm the Property.

The contract of sale of the Property will contain the warranties that will stipulate the requirement that the Property will continue to have a farming business run on it.

The Trust purchased the property on xxx with the intension of undertaking a land subdivision and sales.

Several applications for subdivision were made over a number of years to subdivide the Property into three lots. However, the conditions imposed by the approval were too onerous and the subdivision did not proceed.

In xxxx the Trust ceased pursuing development of the Property.

Since acquisition, the whole of the Property has been continuously leased to related persons/entities of the Trust for the purposes of cattle farming pursuant to verbal agreements.

A list of the third parties to the verbal agreements was provided as part of the private ruling application along with tax invoices issued for the leasing of the Property with the current lease being with a third party.

The current lease agreement with the third party has been in place since the end of 20XX and the Property will continue to be leased to this third party through to the date of settlement of the sale.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 - Division 38-O

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

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

Reasons for decision

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 the period of 5 years preceding the supply; and

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

Farming business

The phase 'farming business' is defined in subsection 38-475(2) of the GST Act as a business of:

(a)  cultivating or propagating plants, fungi or their products parts (including seeds, spores, bulbs and similar things,) in any physical environment; or

(b)  maintaining animals for the purposes of selling them or their bodily produce (including natural increase); or

(c)   manufacturing dairy produce from raw material that the entity produced; or

(d)  planting or tending trees in a plantation or forest that are intended to be felled.

In the Trust's case, a farming business of cattle grazing has been run on the farmland for a period exceeding 5 years. This has been in the form of leasing the Property to third parties, who have been running a farming business on the Property.

Given the above, the first requirement of section 38-480 of the GST Act is satisfied.

The Trust is in the process of selling the Property and the current leasing arrangements with Willowbank will remain in place until the date of settlement. The contract of sale will include the following warranties:

•         a warranty by the vendor that a 'farming business' (as defined in the GST Act) has been carried on the Property for at least five years preceding settlement. Choice one - sale of farm (GST-free) item 1; and

•         a warranty by the purchaser that the purchaser intends that a 'farming business' (as defined in the GST Act) will be carried on the Property following settlement Choice one - Sale of a farm (GST-free, item 2).

The second requirement of section 38-480 of the GST Act does not stipulate that the recipient carries on the same type of farming business as the seller, that is, it isn't necessary for the recipient to carry on the type of farming business currently being run on the farmland.

Accordingly, provided the recipient of the supply of farmland is going to continue to carry on a farming business on the Property the second requirement of subsection 38-480(2) of the GST Act will also be satisfied.

Consequently, as all the requirements of section 38-480 of the GST Act will be satisfied, the Trust will be making a GST-free supply of farmland when it is sold.