Private ruling: GST and supply of farm land
Published: September 2013

Ruling: Q1:  | A1: 

Relevant facts and circumstances: · You are registered for GST. · You own a property in Australia. · The property has been used for agricultural production for at least 150 years, including the last 5 years. · This property includes a large area of pasture which is being leased to a commercial organic producer who uses the land for grazing livestock. · You have applied for organic certification of the whole property and it is currently in the 12 month pre-certification period. The property will attain Organic-in-Transition certification later this year. · You are subdividing part of the property and are planning to sell a number of lots. · The purchasers have indicated that they intend to continue to use the lots for agricultural purposes. · It is proposed that you will lease back the lots, so this land can continue to be included for the organic certification of the land which is required for the organic livestock producer to be able to run their certified organic livestock on the lots. · The organic certification would not be transferable to the new owners, but could be maintained by you if you lease back the lots and sublet them to the current lessee.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 s 9-5 | s 38-480

Reasons for decision: Summary: The supply of the lots meets the requirements in section 38-480 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and therefore is GST-free. | Detailed Reasoning - Detailed reasoning: You make a taxable supply if you make a supply for:- · consideration; · it is made in the course of your enterprise; · it 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. In your circumstances the supply of the lots · is a supply made for consideration, · is a supply made in the course of your farming enterprise · the lots are located in Australia and · you are registered for GST. Hence, the supply will be taxable unless the supply is GST-free or input taxed. The supply of the lots is not input taxed under any provision of the GST Act or any other Acts. The sale of farm land will be GST-free if it satisfies the elements of section 38-480 of the GST Act. Section 38-480 of the GST Act provides that a supply of a freehold interest in 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. Subsection 38-475(2) of the GST Act explains the meaning of 'farming business' to include maintaining animals for the purpose of selling them or their bodily produce. Paragraph 38-480(a) of the GST Act provides that a farming business must have been carried on the land for at least 5 years preceding the supply. You have provided that, the property has been used for agricultural purposes for at least 150 years including the last 5 years. The large area of pasture is being leased to a commercial organic producer who uses the land for grazing livestock It is the Commissioner's view that 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 a farming business is conducted on the land for at least the five years immediately before the sale, the requirement in paragraph 38-480(a) of the GST Act is satisfied, regardless of who has been conducting the farming business for that five year period. Paragraph 38-480(b) of the GST Act provides that the recipient of the supply must intend that a farming business be carried on the land. You have provided that: · the purchasers have indicated that the intend to continue to use the hectare lots for farming business, · they will enter a lease back arrangement with you so that the 1ha lots can continue to be included in the organic certification with the rest of your property and you will sublet the lots to the current lessee who will continue to use the lots for grazing livestock. There is no provision in the legislation that specifies a period of time, but if the purpose/use of the land changes, an adjustment may be necessary. However, if an adjustment is necessary this is the responsibility of the purchaser, not you. The sale of the farm land will retain its GST-free status upon the sale regardless of who actually farms the land. It is more important that the purchaser intends that the land be farmed after its sale as this will satisfy the legislative requirements of paragraph 38-480(b) of the GST Act. This paragraph provides that the purchaser needs only to intend that a farming business be carried on the land. It does not specify who has to carry on that business. It is the use of the land that is relevant, not the ownership. The activity of leasing back to you the lots, so that the lots can continue to be included in the organic certification with the rest of your property, and you then sublet the lots to the current lessee who will continue to use the lots for grazing livestock falls within the definition of a farming business. The leasing back of the lots to you which will continue to use the property for the farming business also satisfies the requirement of paragraph 38-480(b) of the GST Act. In supplying the farm land, you have satisfied the requirements of section 38-480 of the GST Act and the supply of the land will be GST-free.