ATO ID 2005/92: GST and supply of farm land that is also part of a GST-free supply of a going concern
Date of decision: 23 September 2004
Business line: Indirect Tax

Issue
Is the entity, a vineyard owner and wine seller, making a GST-free supply of farm land under section 38-480 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when:

Decision
Yes, the entity is making a GST-free supply of farm land under section 38-480 of the GST Act. The combined operation of sections 38-325 and 38-480 of the GST Act has the effect that the entire sale is GST-free.

Facts
The entity is a vineyard owner and wine seller that is registered for goods and services tax (GST). The entity is selling farm land consisting of a vineyard, and two residential cottages. The entity is also selling its vineyard business to the same purchaser as a supply of a going concern. The farm land has been used by the entity to carry on its vineyard business for at least five years prior to sale. Even though not all portions of the land are used to carry on a farming business, the essential character of the land is such that it is accepted that the land in its entirety is land on which a farming business has been carried on. The purchaser intends to continue the vineyard business. The land used as the vineyard forms part of the supply of the going concern that is GST-free under section 38-325 of the GST Act.

Reasons for decision
Summary: Subsection 38-480 of the GST Act provides that the supply of a freehold interest in land is GST-free if: The entity has used the farm land to carry on the vineyard business for at least five years before the sale and the purchaser intends to continue the vineyard business. However, as there are two residential cottages on the land, the entity has not directly used all of the land in its farming business. It is recognised that there will be cases where not all of the land is used for farming purposes. For the purposes of section 38-480 of the GST Act, farming must be the predominant activity carried out on the land. In other words, the land must have the essential characteristics of farm land. The other activities cannot be so significant that the land cannot be considered to be farm land. The essential character of the entity's land is such that it is accepted that the land in its entirety is land on which a farming business has been carried on. However, the part of the land that is actually used to carry on the farming business, the vineyard, is part of a GST-free supply of a going concern under section 38-325 of the GST Act. Therefore, it is necessary to consider whether this fact precludes the application of section 38-480 of the GST Act to the farm land in its entirety. There is nothing in the wording of section 38-480 of the GST Act that precludes it operating concurrently with another GST-free provision in the GST Act. In addition, there is no provision in the GST Act that precludes two GST-free provisions from operating concurrently. Accordingly, in appropriate circumstances, a supply may be GST-free under more than one provision of Division 38 of the GST Act. The fact that part of the land used for a vineyard is also GST-free under section 38-325 of the GST Act does not detract from the characterisation of the land for the purpose of section 38-480 of the GST Act. Accordingly, the supply of the land in its entirety, including the residential cottages, is GST-free under section 38-480 of the GST Act.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 Division 38 section 38-325 section 38-480
Other references: Tax Office Primary Production Industry Partnership Issues Register
Subject references: Goods and services tax GST free GST farm land Farming business GST supply of going concern