ATO ID 2004/674: GST and sale of farm land that includes the assignment of a lease of Crown land that is dedicated as a future road
Date of decision: 19 December 2003
Business line: Indirect Tax

Issue
Is the entity, a farm operator, making a GST-free supply under section 38-480 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when, as part of the sale of farm land, the entity assigns its interest under a lease of Crown land that is dedicated as a future road?

Decision
Yes, the entity is making a GST-free supply under section 38-480 of the GST Act when, as part of the sale of farm land, the entity assigns its interest under a lease of Crown land that is dedicated as a future road.

Facts
The entity is a farm operator that is registered for goods and services tax (GST). Under a single contract of sale, the entity sells its freehold interest in two separately titled adjacent lots of land. The entity has carried on a farming business on the land for more than five years before the sale. As part of the sale arrangement, the entity is also assigning its interest under a lease of Crown land to the purchaser of the freehold interests. The entity leases this area of Crown land from an Australian government agency. The Crown land is dedicated as a future road and is situated within the boundaries of the entity's freehold land. The land dedicated as a future road is not open to the public. Because of the land's dedication as a future road, the entity has not planted any crops on it. The purchaser intends that a farming business be carried on, on the land.

Reasons for decision
Summary: Section 38-480 of the GST Act provides that the supply of a freehold interest in, or the lease by an Australian government agency of or the long term lease of, land is GST-free if: Under a single contract of sale, the entity is selling its freehold interest in two separately titled adjacent lots of land and is also assigning its interest under a lease of Crown land. Section 38-480 of the GST Act refers to a supply by way of lease by an Australian government agency. A supply by way of the lease referred to in section 38-480 of the GST Act, includes not only the initial grant of the lease by the Australian government agency, but also a supply by way of assignment or transfer of the lease. Accordingly, the entity's supply of land (the sale and the assignment) can be considered under section 38-480 of the GST Act. In order to determine the past, or intended use, of land it is necessary to look at the land in its entirety. If farming activities represent the predominant activity carried out, or to be carried out, on the land in its entirety, then it can be considered that a farming business has been carried on, on the land. Where a farming business has been, or is to be, carried out on adjacent blocks of land, it is necessary to have regard to the activities carried out on all the blocks viewed as a whole. Although the entity has not planted crops on the land that is dedicated as a future road, when that area of land is viewed in conjunction with the activities which have taken place, or are to take place, on the two adjacent freehold lots, the entity's land is regarded as land on which a farming business has been and will be conducted. The farming business has been carried on, on the land for more than 5 years preceding the supply and the purchaser intends that a farming business be carried on, on the land. Therefore, the entity is making a GST-free supply under section 38-480 of the GST Act when, as part of the sale of farm land, the entity assigns its interest under a lease of Crown land that is dedicated as a future road.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 38-480
Subject references: Goods and services tax GST free GST farm land Farming business Supply of land