Private ruling: Goods and services tax (GST) and sale of farmland and going concerns
Published: August 2014

Ruling: Q1: Will GST be payable on your sales of the lots? | A1: No. GST will not be payable even if: • you sell the lots to entity X and it does not acquire all of your plant and equipment • you sell lot D to entity Y and the other lots to entity Z and they do not acquire your livestock • you sell lot D to entity Y and the other lots to entity Z and they do not acquire all of your plant & equipment • you sell the lots to two purchasers and the settlement dates are different • you sell lot D to entity Y first and the sale of the other lots is delayed beyond the settlement date for lot D. | Q2: Will GST be payable on your sale of plant and equipment to entity X | A2: Your sale of plant and equipment that you used in a livestock farming sub-enterprise (for example, a particular livestock farming sub-enterprise) to entity X will be subject to GST unless: • you supply land to entity X; • you supply all of the plant and equipment that you use in the livestock farming sub-enterprise to entity X at the time of settlement of sale of the land to them; • you supply the relevant livestock and fodder to entity X at the time of settlement of sale of the land to them; • you continue to operate the livestock farming sub-enterprise up to the time of settlement of sale of the land to entity X; and • you and entity X agree in writing that the sale of your farming enterprise is a supply of a going concern. Your sale of plant and equipment that you used solely in a crop farming sub-enterprise to entity X will be subject to GST. | Q3: Will GST be payable on your sale of livestock and fodder that you use in a livestock farming sub-enterprise to entity X? | A3: Your sale of livestock and fodder that you use in a livestock farming sub-enterprise to entity X will be subject to GST unless: • you supply land to entity X; • you supply all of the plant and equipment that you use in the livestock farming sub-enterprise to entity X at the time of settlement of sale of the land to them; • you supply the relevant livestock and fodder to X at the time of settlement of sale of the land to them; • you continue to operate your livestock farming sub-enterprise up to the time of settlement of sale of the land to entity X; and • you and entity X agree in writing that the sale of your farming enterprise to entity X is a supply of a going concern. | Q4: Will your sale of plant and equipment to entity Y be subject to GST? | A4: Yes. | Q5: Will your sale of plant and equipment to entity Z be subject to GST? | A5: Yes. | Q6: Will GST be payable on your sale of plant and equipment to another land buyer (someone other than entity X, entity Y or entity Z)? | A6: Your sale of plant and equipment that you use in a livestock farming sub-enterprise to another land buyer will be subject to GST unless: • you supply all of the plant and equipment that you use in that livestock farming sub-enterprise to the land buyer at the time of settlement of sale of the land to them; • you supply the relevant livestock and fodder to the land buyer at the time of settlement of sale of the land to them; • you continue to operate the livestock farming sub-enterprise up to the time of settlement of sale of the land to them; • the land buyer is registered or required to be registered for GST; and • you and the land buyer agree in writing that the sale of your farming enterprise to them is a supply of a going concern. Your sale of plant and equipment that you used solely in a crop farming sub-enterprise to another land buyer will be subject to GST. | Q7: Will GST be payable on your sale of livestock and fodder that you use in a livestock farming sub-enterprise to another land buyer? | A7: Your sale of livestock and fodder that you use in a livestock farming sub-enterprise to another land buyer will be subject to GST unless: • you supply all of the plant and equipment that you use in that livestock farming sub-enterprise to that land buyer at the time of settlement of sale of the land to them; • you supply the relevant livestock and fodder to the land buyer at the time of settlement of sale of the land to them; • you continue to operate your livestock farming sub-enterprise up to the time of settlement of sale of the land to them; • that land buyer is registered or required to be registered for GST; and • you and that land buyer agree in writing that the sale of your farming enterprise to them is a supply of a going concern.

Relevant facts and circumstances: You are registered for GST. You have conducted a farming business comprising certain livestock, certain livestock and crop farming since a certain year. You purchased sections A and B (B now lot B1 and B2) on a certain date and commenced farming from that date. On a certain date, you purchased additional land, namely section C (now lot C1) (an adjoining section) to expand your farming business. On a certain date, you purchased additional land, namely lot D (a nearby section although not adjoining) to further expand the farming business. On a certain date, a portion of a facility was closed and you purchased it. That portion became part of section C, hence the change to lot C1. The lots are located in Australia. You have owned sections A, B1, B2 and C for a certain number of years. You have owned lot D for a certain number of years. You have owned the facility for a certain number of years. You no longer operate a crop farming business on the land. You lease lots A, B1, B2 and C to a commercial crop farmer who grows crops on these lots. You lease lot D to a commercial crop farmer who carries on a crop farming business on the land. You still hold livestock on the land. You intend to retire from farming. You have been in contact with adjoining landowners and are currently having discussions with three adjoining landowners who have expressed an interest in purchasing the property in either whole or part. All conduct farming businesses on their landholdings that adjoin yours. These entities are entity X, entity Y and entity Z. These entities are GST registered. You anticipate the following alternative scenarios: Scenario 1 You sell the lots as a whole to entity X as part of a supply of a farming business. Entity X is a livestock and crop farmer. Entity X has indicated that it will also take the livestock, but are only interested in some of the plant and equipment. The scale of their operations is far greater than the scale of your operations and they have their own plant and equipment. Your plant and equipment is suitable to the scale of your operations but much of it is of no practical use to them. You will sell the plant and equipment that entity X has no use for privately or at a clearing sale. Scenario 2: You sell the property in parts to two different purchasers. Entity Y purchases lot D and entity Z purchases the balance. The settlement date for the sale of lot D may be different to the settlement date for the sale of the balance to entity Z Entity Y is a livestock and crop farmer. Entity Z is a crop farmer. A similar situation would exist as in scenario 1 regarding your plant and equipment. Entity Y and entity Z do not require your livestock. You sell the livestock in the livestock market at the time of settlement. Scenario 3 Entity Y has made a firm offer for lot D and the offer is close to the mark. If this block is sold to them and the remaining two blocks need to be placed in the hands of a real estate agent to go on the market should either offer made by entity X and/or entity Z be unacceptable (which the entity X offer currently is although negotiations are continuing) and a delay is experienced in finalising the sale of the whole property. Farming business activities are currently being carried on on the lots. Farming business activities have been carried on on the lots for the period of at least 5 years immediately preceding the present. The lessees will continue to carry on their crop farming businesses on the land up to the time of sale of the lots. You rotate your certain type of livestock between the five lots. You may hold a certain type of livestock on the land up to the time of settlement of sale of the last lot that you sell - this will depend on whether there is enough room on the lot. You use fodder in your livestock farming enterprise. If you supply livestock to a land buyer, you will also supply fodder to them. The purchasers of the lots will intend that a farming business be carried on on the lots after sale to them.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1) | A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 9-40 | A New Tax System (Goods and Services Tax) Act 1999 section 38-325 | A New Tax System (Goods and Services Tax) Act 1999 section 38-480

Reasons for decision: Summary: You will make a GST-free supply of farmland under section 38-480 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). | Detailed Reasoning - Detailed reasoning: GST is payable on taxable supplies. GST is normally payable by the supplier. You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which states: You make a taxable supply if: (a) you make the supply for *consideration; and (b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and (c) the supply is *connected with Australia; and (d) you are *registered, or *required to be registered. However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed. You meet the requirements of section 9-5 of the GST Act because; • you will supply property for consideration when you sell it, • you will make this supply in the course or furtherance of an enterprise that you carry on, • the supply will be connected with Australia (as the land is located in Australia), and • you are registered for GST. Therefore, what remains to be determined is whether the sale of the property is GST-free or input taxed. In accordance with section 38-480 of the GST Act, the sale of farmland is GST-free if: (a) a farming business has been carried on on the land 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. The farming business carried on before sale need not be carried on by the vendor. The farming business carried on after sale need not be carried on by the buyer. In accordance with Goods and Services Tax Determination GSTD 2011/2 a 'farming business' can be carried on for the purposes of paragraph 38-480(a) of the GST Act where there has been a cessation of routine farming activities by the supplier for a period of time in anticipation of a sale. In your case, farming businesses will have been carried on on the land for at least the period of 5 years preceding the supply. Hence, you meet the requirement of paragraph 38-480(a) of the GST Act. The buyer will intend that a farming business be carried on on the land. Hence, you meet the requirement of paragraph 38-480(b) of the GST Act. As you meet both requirements of paragraph 38-480 of the GST Act, you will make a GST-free supply of farm land. Therefore, you will not make a taxable supply of the farmland when you sell it. Hence, GST will not be payable on the sale of the farmland (whether sold together or in multiple transactions). | Summary: In certain circumstances, your supplies of some of these items would be part of a GST-free supply of a going concern. | Detailed Reasoning - Detailed reasoning: You meet the requirements of section 9-5 of the GST Act because; • you will supply plant and equipment, livestock and fodder for consideration, • you will make these supplies in the course or furtherance of an enterprise that you carry on, • these supplies will be connected with Australia, and • you are registered for GST. There are no provisions of the GST Act under which your supplies of these items will be input taxed. Therefore, what remains to be determined is whether the sale of these items will be GST-free. A supply of a going concern is GST-free if it meets the requirements of subsection 38-325(1) of the GST Act. There are no other provisions of the GST Act under which your sales of the items could be GST-free. Subsection 38-325(2) of the GST Act states: A supply of a going concern is a supply under an arrangement under which: (a) the supplier supplies to the *recipient all of the things that are necessary for the continued operation of an *enterprise; and (b) the supplier carries on, or will carry on, the enterprise until the day of the supply (whether or not as a part of a larger enterprise carried on by the supplier). Subsection 38-325(1) of the GST Act states: The *supply of a going concern is GST-free if : (a) the supply is for *consideration; and (b) the *recipient is *registered or *required to be registered; and (c) the supplier and the recipient have agreed in writing that the supply is of a going concern. Paragraphs 74, 80, 149 and 150 of Goods and Services Tax Ruling GSTR 2002/5 provide guidance on determining whether the supplier of the enterprise supplies to the purchaser all of the things that are necessary for the continued operation of the supplier's enterprise. They state: 74. The supplier is required to supply to the recipient all of the things that are necessary to carry on the 'identified enterprise' so that the recipient is put in a position to carry on the enterprise if it chooses. 80. The supplier supplies all of the things that are necessary for the continued operation of an enterprise when the supplier supplies those things which will put the recipient in a position to carry on the enterprise, if it chooses. 149. The term 'carrying on an enterprise' includes doing anything in the course of the commencement or termination of the enterprise. A supplier may carry on an enterprise to the day of the supply for the purposes of paragraph 38-325(2)(b) during the period of commencement or termination of an enterprise. 150. A supplier is unable to supply all of the things that are necessary for the continued operation of an enterprise unless the relevant enterprise is not only being 'carried on', but is also operating. Where an enterprise engaged in an activity ceases to carry on that activity and the assets are in the course of being sold off, the enterprise is being 'carried on', but is not operating. In accordance with paragraphs 154, 170 and 177 of GSTR 2002/5, things used in an enterprise up to the time of sale of the enterprise as a going concern, but which are not essential for the continued operation of the enterprise can form part of the supply of the going concern. The things necessary to continue operating your farming enterprise are; • land • plant and equipment • livestock, and • fodder. In order for there to be a continuation of the farming enterprise after sale, you must be operating the enterprise up to the time of sale. You will supply all of the things necessary for the continued operation of one of your livestock farming sub-enterprises if: • you sell land to an entity; and • you continue to operate the enterprise up to the time of settlement of sale of the property; and • you supply all of the relevant plant and equipment, livestock and fodder to the land buyer at the time of settlement of sale of the land. You will meet the requirement of paragraph 38-325(2)(a) of the GST Act under such circumstances. Where you supply to the land buyer only some of the plant and equipment that is necessary to continue operating one of your livestock farming sub-enterprises because the land buyer already owns all or much of the necessary plant and equipment, you will not meet the requirement of paragraph 38-325(2)(a) of the GST Act because the supplier of the enterprise must supply to the purchaser all of the things necessary for the continued operation of the supplier's enterprise. You will meet the requirement of paragraph 38-325(2)(b) of the GST Act if you continue to carry on the enterprise up to the time of settlement of sale of the property. Where you meet the requirements of paragraphs 38-325(2)(a) and 38-325(2)(b) of the GST Act, you will make a supply of a going concern. Where you sell your farming enterprise as a going concern, you will meet the requirement of paragraph 38-325(1)(a) of the GST Act. Where the buyer is registered for GST, you will meet the requirement of paragraph 38-325(1)(b) of the GST Act. Where you and the buyer agree in writing that the sale of your farming enterprise is a supply of a going concern, you will meet the requirement of paragraph 38-325(1)(c) of the GST Act. Therefore, you will make a GST-free supply of a livestock farming sub-enterprise as a going concern where: • you sell land to an entity and you also supply to it all of the relevant plant and equipment, relevant livestock and relevant fodder at the time of settlement of sale of the land to that entity; • you continue to operate the enterprise up to the time of settlement of sale of the property; • the buyer is registered or required to be registered for GST; and • you and the buyer agree in writing that the sale of your farming enterprise is the supply of a going concern. Where you make a GST-free supply of a going concern, you will not make a taxable supply of the things that make up that GST-free supply, for example, plant and equipment. Therefore, GST will not be payable on your supply of the things that make up the GST-free supply of the going concern. Where your sale of plant and equipment, livestock or fodder is not part of a GST-free supply of a going concern, your sale of these items will be subject to GST because all of the requirements of section 9-5 of the GST Act will be met. You will not make a GST-free supply of a crop farming going concern, because you have ceased to operate a crop farming enterprise. The plant and equipment you used only in the crop farming enterprise will not be essential for the continued operation of the overall farming enterprise that may be operating at the time of sale of this plant and equipment and you will not be using this plant and equipment in that enterprise up to the time of sale. Hence, your sale of this plant and equipment will not form part of a supply of a going concern. Therefore, the sale of plant and equipment that you used only in your crop farming enterprise will not be GST-free under section 38-325 of the GST Act. You will need to separately consider whether you are making a GST-free supply of a going concern to each land buyer. Where you are not making a GST-free supply of a going concern to a particular land buyer, your sale of the land to the buyer will still be GST-free under the farmland exemption. | Detailed Reasoning - Possible change in legislation: The government is proposing to change the GST Act so that a sale of farmland that meets the requirements of section 38-480 is no longer GST-free, but will be subject to GST. If the proposed amendments are passed, GST will be payable on such sales, but the GST will be reversed charged to the buyer, which means that the buyer will be liable to pay the GST to the Australian Taxation Office. A similar change is proposed for sales of going concerns that are GST-free under section 38-325 of the GST Act. It is not known if the proposed amendments will be passed and if so, when. However, it is likely that the proposed amendments, if passed, will take effect from a date in the 2014 calendar year If these amendments are passed and the amendments have effect in respect of your sales to the land buyers, you will no longer be able to rely on this ruling.