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Edited version of private advice
Authorisation Number: 1051995785482
Date of advice: 21 June 2022
Ruling
Subject: GST and the sale of farmland
Question
Is the sale of the Land by the Vendors to the Purchaser 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. The sale of the Land to the Purchaser is a GST-free supply of farmland under section 38-480 as all the requirements of section 38-480 are satisfied. No GST is payable on the sale.
Relevant facts and circumstances
The Purchaser has been registered for GST since DDMMYYYY and operates a business.
The Purchaser purchased several parcels of land totalling X hectares (the Land) from a group of vendors (the Vendors) in a contract of sale dated DDMMYYYY for $x excluding GST (Sale Contract).
The Vendors acquired the Land progressively over a X-year period and during their period of ownership carried on a grazing business. The grazing business has been carried on uninterrupted for more than 5 years immediately prior to selling the Land to the Purchaser. Each of the Vendors is registered for GST.
The Land has been used for grazing sheep and cattle as well as growing crops for fodder and hay. The entire area of the Land is used for farming, except for a small part of the Land containing houses and surrounding curtilage used for residential accommodation (the Houses).
The Sale Contract
Clause 1 provides that on completion the Vendors must cause the legal title to the Land (being an estate in fee simple) to pass to the Purchaser. Clause 2 provides that legal title to the Land does not pass before completion.
Clause 3 provides that prior to completion the Purchaser and Vendors shall enter into a Grazing Rights Agreement, to expire on a date X years following the date of completion of the Sale Contract. The Grazing Rights Agreement permits the Vendors to continue their grazing business on the Land for a fee. The Purchaser may resume any part of the Land used by the Vendors if the Purchaser requires it for its own business.
Clause 4 provides that, simultaneously with completion, the Purchaser agrees to enter into residential tenancy agreements with the Vendors so that the Vendors may continue to occupy the Houses as tenants after completion.
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 9-40
A New Tax System (Goods and services Tax) Act 1999 section 38-475
A New Tax System (Goods and services Tax) Act 1999 section 38-480
A New Tax System (Goods and services Tax) Act 1999 section 195-1