ATO ID 2004/631: GST and supply of farm land to a purchaser who intends to on-sell the land to a third party
Date of decision: 2 December 2003
Business line: Indirect Tax

Issue
Is the entity, an owner of farm land, making a GST-free supply under section 38-480 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it sells farm land to a purchaser whose intention is to on-sell the land to a third party who intends that a farming business will be carried out on the land?

Decision
No, the entity is not making a GST-free supply under section 38-480 of the GST Act as the purchaser does not intend that a farming business be carried out on the land at any time while it owns the land. The entity is making a taxable supply under section 9-5 of the GST Act.

Facts
The entity is an owner of farm land. The entity is selling farm land to a purchaser. The farm land is land on which a farming business has been carried on for more than the five years preceding the sale by the entity. The purchaser does not intend that a farming business be carried out on the land between the time it acquires the farm land and the time it subsequently sells the farm land. The purchaser intends to sell the land to a third party who intends to carry on a farming business on the land. The purchaser's acquisition of the land and subsequent sale will not occur simultaneously. The entity is registered for goods and services tax (GST) and the supply satisfies the other positive limbs of section 9-5 of the GST Act.

Reasons for decision
Summary: Subdivision 38-O of the GST Act allows the supply of farm land to be GST-free in certain circumstances. Section 38-480 of the GST Act provides that the supply of a freehold interest in land is GST-free if: A farming business was carried on, on the land, for the period of five years preceding the supply by the entity to the purchaser. Accordingly, it is necessary to determine whether the purchaser, the recipient of the supply, intends that a farming business be carried on, on the land. The second requirement of section 38-480 of the GST Act does not specify any period of time within which the intended farming business must commence. Furthermore, it is not necessary for the recipient to carry on the intended farming business. It is the intended use of the land that is important, not who carries on the intended farming business. The purchaser's intention is to sell the land. The purchaser does not intend that a farming business be carried on, on the land at any time while it owns the land. The ultimate use of the land by the third party who purchases the land from the purchaser is too remote from the entity's supply of the land for it to be taken into account in determining whether, at the time of the supply to the purchaser, the purchaser intended that a farming business be carried on, on the land. As such, the requirements in section 38-480 of the GST Act are not satisfied and the entity is not making a GST-free supply when it sells farm land to a purchaser who intends to on-sell the land but does not intend that a farming business be carried on, on the land, at any time while it owns the land. The entity is registered for GST and the supply satisfies the other positive limbs of section 9-5 of the GST Act. In addition, the supply is neither GST-free under any other provision of Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it sells farm land to a purchaser whose intention is to on-sell the land to a third party who intends that a farming business will be carried out on the land.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 Division 38 Subdivision 38-O section 38-480 Division 40
Related ATO interpretative decisions: ATO ID 2004/632 | ATO ID 2005/103
Other references: Commonwealth of Australia 2003. Primary Production Industry Partnership - Issues Register - Issue 6.2.1(b) - Farmland. Tax Office, viewed 18 June 2003, www.ato.gov.au
Subject references: Goods and services tax GST free GST farm land Farming business Supply of land