ATO ID 2001/291: GST and Sale of Farmland
Date of decision: 26 July 2001
Business line: Indirect Tax

Issue
Is the entity, a grazier, 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 its grazing property?

Decision
Yes, the entity is making a GST-free supply under section 38-480 of the GST Act when it sells its grazing property.

Facts
The entity carries on a business of grazing cattle for sale. The entity grazes the cattle on the land it owns. The entity is now selling the land. The entity has been carrying on the business on the land for a period of 5 years and will continue to do so leading up to the sale. The purchaser of the land intends to carry on a horticulture business on the property. The entity is registered for goods and services tax (GST).

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 states: '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: (a) 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 (b) the recipient of the supply intends that a farming business be carried on, on the land.' Therefore, for the sale of farm land to be GST-free, the above requirements must be satisfied. In this case, the entity has been carrying on a business of grazing cattle for sale on the land. The entity has been carrying on that business on the land for the period of 5 years preceding the sale (supply). Furthermore, the purchaser (the recipient of the supply) intends to carry on a horticulture business on the land. As such, it is necessary to determine whether the entity's grazing activities amount to a 'farming business' as per the first requirement in section 38-480 of the GST Act; and whether a horticulture business amounts to a 'farming business' as per the second requirement in section 38-480 of the GST Act. The phrase 'farming business' is defined for the purposes of the GST Act. Subsection 38-475(2) of the GST Act states: 'An entity carries on a farming business if it carries on a business of: (a) cultivating or propagating plants, fungi or their products or parts (including seeds, spores, bulbs and similar things), in any physical environment; or (b) maintaining animals for the purpose of selling them or their bodily produce (including natural increase); or ....' In this case, the entity has been carrying on a business of grazing cattle for sale. This activity falls within the definition of 'farming business' in paragraph 38-475(2)(b) of the GST Act, as grazing cattle for sale is 'maintaining animals for the purpose of selling them'. As such, a 'farming business' has been carried on for at least the period of 5 years preceding the supply as per the requirement in paragraph 38-480(a) of the GST Act. In addition, the purchaser (the recipient of the supply) intends to conduct a horticulture business on the property. This activity falls within the definition of 'farming business' in paragraph 38-475(2)(a) of the GST Act because 'horticulture' involves the growing of plants for sale. Furthermore, as paragraph 38-480(b) of the GST Act requires that the recipient intend that 'a farming business' be carried on, it is not necessary for the recipient of the supply to intend for the same farming business to be carried on, on the land. Accordingly, the requirement in paragraph 38-480(b) of the GST Act is also satisfied. Therefore, as the requirements in section 38-480 of the GST Act are satisfied, the entity is making a GST-free supply of farm land.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 Subdivision 38-O section 38-475(2)(a) section 38-475(2)(b) section 38-480 paragraph 38-480(a) paragraph 38-480(b)
Related ATO interpretative decisions: ATO ID 2001/292
Other references: Primary Production Newsletter No. 2 - 23 May 2000
Subject references: Goods & services tax GST free GST farm land Supply of land