Private ruling: GST and sale of farmland
Published: June 2012

Ruling: Q1: Is the sale of X Station a GST-free supply under section 38-480 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes. Facts You were appointed as receivers and managers in relation to X and Y Stations and stock depastured on these properties by the Bank, pursuant to a deed of appointment of receivers and managers dated 2011. You have been registered for GST as the representatives of Entity A since 2011. This private ruling application concerns the sale of adjoining lots known as X Station (also referred to as the Land). X Station is owned by Entity A and mortgaged to the Bank. Current title searches indicated that Entity A acquired the Land in 2004 and Australian Business Register searches indicate that they have been registered for GST since 1 July 2000. X Station has a total area of XX hectares. The property is designated as rural. A valuation report after your appointment indicates that: Country to the land generally comprises open downs country for the most part, broken by channel systems. Structural improvements to the property comprise a fair only homestead, workers quarters, a good machinery shed, workshop, hay shed with attached poison shed and saddle shed. There are a set of cattle yards located at the homestead and an old shearing shed with shearers quarters. Water is supplied to the parcel via bores that pump to troughs and turkeys nests throughout the property. This supply is also supplemented by some small dams. The property is fenced into approximately X main paddocks, with a number of smaller holding paddocks. The highest and best use of the property is backgrounding of livestock. The carrying capacity of the property is assessed at XXX head on an adult equivalent basis. The likely buyer profile is local graziers Some improvements on the Land have been damaged by a fire since the date of the valuation. It is your understanding that: Entity A used both X Station and Y Station collectively for livestock grazing as part of their farming business. X Station has been used for livestock grazing for many years (and over 5 years), which is supported by the improvements located on the Land. In 2008, Entity A destocked X Station and transferred the majority of the stock to Y Station with the intention of selling X at that time. Although some negotiations with potential purchasers occurred, a sale was not achieved. In 2009, Y Station was carrying the majority of X Station's stock as well as its own. In 2009, Entity A refinanced with their bank and they included approximately $XXX in livestock freight expenses in their finance application. It was intended that those funds be used to transport stock back to X Station. However, this was not possible due to funds being absorbed by other unforseen costs. By the end of 2009, Y Station was experiencing severe drought and it had run out of grass. From 2009, Entity A was receiving phone calls from graziers and agents who wanted to agist X Station. You have been advised that cattle were agisted at X Station by Entity B, as part of a farming business conducted in Z Station. In 2009, Entity A attempted to obtain further funding to freight cattle to X Station. However, this was not possible due to them being in default. After 1 January 2011, you sold the remaining stock on X Station, being X head of cattle. During your period of appointment, over ZZZ head of stock from Y Station were sent to sale yards and slaughter houses and around YYY head of stock were included with the sale of Y Station in 2012. Recently, you signed a contract for the sale of X Station to the Buyer. The contract includes: · a warranty that the Buyer intends that a farming business will be carried on, on the land from settlement and · upon payment of the deposit, the Buyer is entitled to depasture ZZZ head of livestock on the property in accordance with special condition X. The pre-appointment accounts for the business conducted by Entity A for the financial years ending 20 June 2006, 2007 and 2008 include the X Land and improvements as non-current assets of the farming business. Those accounts also show trading of livestock during those financial periods and that the farming business conducted on X Station and Y Station was accounted for as a single enterprise. There is no indication that any areas of the Land were used for purposes other than the farming business and the Land has only been advertised for sale as a farm. You further advised that, to your understanding: · any temporary breaks in the farming activities carried on at X Station were due to financial difficulties, preparing the property for sale and the appointment of Receivers and · there was no conscious decision to cease farming activities at X Station altogether and it is intended that the property will continue to be used for grazing.


Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 Section 58-5. | A New Tax System (Goods and Services Tax) Act 1999 Section 58-10. | A New Tax System (Goods and Services Tax) Act 1999 Section 38-480. | A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-475(2). | A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision: Summary: The sale of X Station is GST-free supply under section 38-480 of the GST Act. | Detailed Reasoning - Detailed reasoning: Division 58 of the GST Act applies to a taxable supply made by a representative of an incapacitated entity. A representative of an incapacitated entity is defined in section 195-1 of the GST Act to include a receiver. Subsection 58-5(1) of the GST Act provides that any supply by an entity in the capacity of a representative of another entity that is an incapacitated entity is taken to be a supply by the other entity. Subsection 58-10(1) of the GST Act provides that a representative of an incapacitated entity is liable to pay GST that the incapacitated entity would, but for section 58-10 of the GST Act or section 48-40 of the GST Act, be liable to pay on a taxable supply to the extent that the making of the supply to which the GST relates is within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs. Therefore, you would be liable to pay any GST that Entity A would, but for section 58-10 of the GST Act, be liable to pay on the sale of the property supply if it was a taxable supply. 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: · you make the supply for *consideration, and · the supply is made in the course or furtherance of an *enterprise that*you carry on; and · the supply is *connected with Australia; and · 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. (* denotes a term defined in section 195-1 of the GST Act.) In this case, the requirements of paragraphs 9-5(a) to 9-5(d) are satisfied. It remains to be determined if the supply is GST-free or input taxed. Subdivision 38-O of the GST Act allows the supply of farmland 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: · 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 · the * recipient of the supply intends that a farming business be carried on, on the land. The important factor to consider, in determining whether a supply of farm land is GST-free under section 38-480 of the GST Act, is the use of the land as opposed to the ownership of it. Therefore, as long as a farming business is conducted on the land for at least the 5 years immediately before the sale, the requirement in paragraph 38-480(a) is satisfied, regardless of who has been conducting the farming business for that 5 year period. Likewise, the recipient of the supply need only intend that a farming business be carried on, on the land. They are not required to carry on a farming business themselves in order to satisfy the requirement in paragraph 38-480(b). X Station has the essential characteristics of farmland. Hence, for the sale to be GST-free, the above requirements of section 38-480 of the GST Act must be satisfied. | Detailed Reasoning - Paragraph 38-480(a) of the GST Act: The term 'farming business' is defined in subsection 38-475(2) of the GST Act to include maintaining animals for the purpose of selling them or their bodily produce (including natural increase). In this case, Enity A used X Station for their livestock grazing business since they acquired it in after 1 January 2004. You advised that after 1 January 2008, Entity A destocked X Station and transferred the majority of the stock to Y Station with the intention of selling X at that time. Although some negotiations with potential purchasers occurred, a sale was not achieved. Entity A tried to obtain finance to freight back stock to X Station however, this did not eventuate. For a period livestock were agisted at X Station by an entity conducting a farming business. Since your appointment you sold the last lot of stock on X Station and are now in the process of selling the Land. Hence, the actual farming activity has ceased. Therefore, we need to consider whether the land is land on which a farming business has been carried on for at least the period of five years preceding the sale. The expression 'the period of five years preceding the supply' indicates that the period in which a farming business must be carried on, on the land, is a continuous period of five years immediately before the supply of the land. Goods and Services Tax Determination GSTD 2011/2 considers whether 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 sale. Paragraphs 6 to 7 state: 5. Carrying on an enterprise is defined in section 195-1 to include 'anything done in the course of the commencement or termination of the enterprise'. Accordingly, for the purposes of paragraph 38-480(a), carrying on a farming business includes all the routine farm activities carried out on the land together will any other activities related to commencing, conducting and terminating the farming business. The routine farming activities refer to the physical activities undertaken on the land relevant to the classes of farming in subsection 38-475(2). 6. In the course of selling land on which a farming business is carried on, the seller may cease the routine farming activities in anticipation of the sale. The cessation of these farming activities does not necessarily result in the cessation of the farming business being carried on, on the land. It may be done in the course of terminating the farming business; accordingly the farming business may still be carried on. 7. An enterprise terminates when the activities related to the enterprise cease. Ordinarily, this occurs when all the enterprise assets are disposed of, or converted to another purpose or used, and all the obligations of the enterprise are satisfied, for example, the finalisation of accounts, preparation of activity statements, payment of creditors and the cancellation of business registrations. Paragraph 12 of GSTD 2011/2 further states: 12. There are circumstances in which the enterprise of the farming business could be considered to have terminated before the sale of the land. For instance, if there has been a change in the purpose or use of the land before its sale such that it is used for private purposes or is no longer used in the farming business, or outstanding obligations cannot be satisfied and all other activities relevant to the farming business have ceased. Where a temporary cessation in farming activities occurs, for example, due to the poor weather, or holidays taken, or land is left fallow etc, this does not mean the farming business has ceased altogether. However, if a conscious decision to cease farming is implemented, then we may be able to conclude that there has been a break and the 5 year requirement would not be satisfied. Whether there has been a break in the carrying on of a farming business sufficient to preclude the operation of section 38-480 of the GST Act, in the five years preceding the sale, will in each case be a question of fact. Farming activities may have ceased on X Station in 2008 in anticipation of a sale. When a sale did not eventuate Entity A tried to obtain finance to continue the farming activities on the Land. Entity A have continued to carry on their farming business up until your appointment. However, the farming activities were mainly conducted in Y Station. X Station remained to be part of their farming business although minimum stock was held. Entity A has not used it for a purpose that is not related to a farming business. We do not consider that after 1 January 2008 there was a conscious decision to cease farming on the Land. Hence, we cannot conclude that there has been a break in the carrying on of a farming business on the Land during this period. We note that for a certain period from 2009 livestock were agisted on X Station. The agistment on the land is not a farming business. However on the information available to you the entity is carrying on a farming business and used X Station for its farming business. Hence, during this period, X remained to be land on which a farming business was carried on. Since your appointment you sold the stock from both Y and X Stations, sold Y station and are now in the process of selling X Station. We consider that all these activities were in the course of terminating the farming business and accordingly, the farming business is still carried on. We also note that a special clause was inserted in the contract of sale allowing the Buyer to enter the property and depasture livestock On the information provided, we consider that a farming business has been carried on at X station for the five years preceding settlement. As X Station is land on which a farming business is carried on for at least five years preceding the sale, the sale of the Land satisfies the requirement of paragraph 38-480(a) of the GST Act. | Detailed Reasoning - Paragraph 38-480(b) of the GST Act: In order to satisfy the requirement of paragraph 38-480(b) of the GST Act, the vendor should seek evidence to demonstrate that a reasonable enquiry has been made about the purchaser's intention. What is reasonable will depend on all the circumstances. Usually this will require the vendor to ask the purchaser whether or not there is an intention to carry on a farming business. In most cases, if the vendor obtains a written statement or warranty from the purchaser stating the intention is that a farming business be carried on, then the vendor will be able to demonstrate that it has made a reasonable enquiry about the purchaser's intention, unless the vendor has reason to believe the information is incorrect. The contract of sale contains a warranty that the Buyer intends that a farming business will be carried on, on the land from settlement. Hence, the requirement of paragraph 38-480(b) of the GST Act is satisfied. Therefore, as all the requirements of section 38-480 of the GST Act are satisfied, the sale of X Station is GST-free.

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