Private ruling: Acquisition of farm land
Date of advice: 31 January 2019
Published: May 2019
Ruling period: 28 January 2019 to 30 June 2019

Ruling: Q1: Do you make a creditable acquisition in accordance with section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) when you acquire land from the Sellers? | A1: No, you will not make a creditable acquisition if the supply to you of the land is a GST-free supply of farm land in accordance with section 38-480 of the GST Act.

Relevant facts and circumstances: ● You are registered for GST. ● You (as the Buyer) have entered into a contract to buy farm land. ● You intend that a farming business (grazing of cattle) will be carried on, on the land. ● The Sellers are registered for GST. ● Pursuant to the Sale Agreement, the Sellers, subject to the satisfaction of certain conditions, have agreed to sell to you the Property. ● The Property included in the sale consists of a number of titles. ● The Sellers currently carry on a farming business (grazing of cattle) on the land. ● The Sale Agreement provides that the supplier warrants to the recipient, for GST purposes, that a farming business has been carried on, on the land for at least five years preceding the day of the supply; and the farming business will continue on the land until the day of the supply.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 (GST Act) Section 11-5 | Subsection 38-475(2) | Section 38-480 | Section 195-1

Reasons for decision: Summary: You do not make a creditable acquisition under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) if the supply to you was a GST-free supply; which based on the facts you provided would be the case. This is because in order for you to make a creditable acquisition, one of the requirements of section 11-5 of the GST Act is that the supply of the thing to you is a taxable supply; which would not be the case where the supply to you is a GST-free supply. | Detailed Reasoning - Detailed reasoning: Section 11-5 of the GST Act provides that you make a creditable acquisition if: (a) you acquire anything solely or partly for a creditable purpose; and (b) the supply of the thing to you is a taxable supply; and (c) you provide, or are liable to provide, consideration for the supply; and (d) you are registered, or required to be registered. It is necessary to meet all of the requirements of section 11-5 of the GST Act in order for you to make a creditable acquisition. If the supply by the Sellers of farm land to you is not a taxable supply, then you will not make a creditable acquisition as you would not meet paragraph 11-5(b) of the GST Act. Based on the relevant facts that you have supplied being accurate and complete, the supply to you by the Sellers of the farm land is not a taxable supply. This is because it is a GST-free supply under section 38-480 of the GST Act. Section 38-480 of the GST Act provides that 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: (a) the land is land on which a farming business has been carried on for at least the period of five years preceding the supply; and (b) the recipient of the supply intends that a farming business be carried on, on the land. Regarding the requirement in paragraph 38-480(a) of the GST Act, the Sellers (under the Sale Agreement) warrant to you that a farming business for GST purposes has been carried on, on the land for at least five years preceding the day of the Supply, and that the farming business will continue on the land until the day of the supply. As such, paragraph 38-480(a) of the GST Act would be satisfied. The term ‘farming business’ has the meaning given by subsection 38-475(2) of the GST Act, which provides that an entity carries on a farming business if it carries on a business of: (a) cultivating or propagating plants, fungi or their products or parts (including seeds, spores, bulbs and similar things), in any physical environment (b) maintaining animals for the purpose of selling them or their bodily produce (including natural increase) (c) manufacturing dairy produce from raw material that the entity produced, or (d) planting or tending trees in a plantation or forest that are intended to be felled. A cattle grazing business would thus fit the definition of a farming business as provided in paragraph 38-475(2)(b) of the GST Act. Regarding the requirement in paragraph 38-480(b) of the GST Act, it is the use of the land as opposed to the ownership of it that is relevant. The recipient of the supply need only intend that a farming business be carried on, on the land; paragraph 38-480(b) does not require purchasers to carry on the farming business themselves. There is no guidance in the GST legislation in relation to the timeframe within which the purchaser or another party must start the farming business; therefore each case must be decided on its specific facts. While the circumstances surrounding the sale of farm land are going to differ widely, it is reasonable to infer that a purchaser would need to be able to give substance to their assertion that they intend a farming business to be carried out on the land. The stated intention must be backed up by some activity. This activity should commence in the immediate or foreseeable future. The intent is not satisfied by having a long term goal, or desire or hope to establish a business. The term farming activities is to be distinguished from the term farming business. A farming business includes farming activities such as fencing, but is also includes business activities such as keeping business records. Further, it is recognised that, generally, there will be some private use of farm land. Provided that the private use is not so significant that the land loses the essential characteristics of farm land, section 38-480 of the GST Act may continue to apply. Thus, on the basis of the relevant facts provided by you being accurate and complete, you (as the recipient of the supply), intend that a farming business will be carried on, on the land. As such, paragraph 38-480(b) of the GST Act would be satisfied in relation to the land. In conclusion, wh ere the supply to you is a GST-free supply of farm land under section 38-480 of the GST Act, you will not make a creditable acquisition when you acquire the land from the Sellers.