ATO ID 2004/632: GST and supply of farm land preceded by cessation of farming business for a short period
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:

Decision
No, the entity is not making a GST-free supply under section 38-480 of the GST Act when it sells farm land to a purchaser who intends that a farming business be carried on, on the land and there has been a cessation in carrying on a farming business on the land for a short period from when the entity purchased the land to the time the entity sells 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, which the entity purchased for the purpose of re sale. At the time the entity purchased the land, a farming business had been carried on, on the land for more than five years. The entity has owned the land for only a short period and is now selling to a purchaser who intends that a farming business be carried on, on the land. The entity's acquisition of the land and subsequent sale do not occur simultaneously. During the period that the entity has owned the land, there has been a cessation in carrying on a farming business, on the land. 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: Section 38-480 of the GST Act provides that the supply of a freehold interest in land is GST-free if: The first requirement to be satisfied under section 38-480 of the GST Act is that the land is land on which a farming business has been carried on for at least the period of five years preceding the supply. The phrase, 'the period of 5 years preceding the supply' means that the period immediately preceding the supply must be a continuous period. At the time that the entity purchased the farm land, a farming business had been carried on, on the land for at least five years and now after a short period of ownership, the entity is selling to a purchaser who intends that a farming business will be carried on, on the land. However, there has been a cessation of carrying on a farming business on the land for the short period from when the entity purchased the land to the time the entity sells the land. While the entity's period of ownership has been short, during this period, there has been more than a mere temporary cessation of farming activities on the land, but rather, there has been a complete cessation of carrying on a farming business. As such, the land is not land on which a farming business has been carried on for a continuous period of five years preceding the entity's supply and the first requirement of section 38-480 of the GST Act is not satisfied. Accordingly, the entity is not making a GST-free supply when it sells the farm 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 not GST-free under any other provision of Division 38 of the GST Act or 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 who intends that a farming business be carried on, on the land and there has been a cessation in carrying on a farming business on the land for a short period from when the entity purchased the land to the time the entity sells the land.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 Division 38 section 38-480 Division 40
Related ATO interpretative decisions: ATO ID 2005/103 | ATO ID 2004/631
Other references: Commonwealth of Australia 2003. Primary Production Industry Partnership - Issues Register - Issue 6.2.1(b) - Farm Land. Tax Office, viewed 2 December 2003. www.ato.gov.au
Subject references: Goods and services tax GST free GST farm land Farming business Supply of land