Private ruling: Sale of farm land
Date of advice: 9 October 2018
Published: December 2018

Ruling: Q1: Can you sell your farmland under section 38-480 of the GST Act? | A1: No.

Relevant facts and circumstances: You have farmed on your property since you purchased it over several years ago. You will continue to farm it until it is sold to a developer. You have been approached by Developers, who want to develop the property, which is now near new subdivisions. There is a new suburb a short distance away. The developer will subdivide and sell the land for residential purposes.

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 38-480

Reasons for decision: Summary: You have asked whether section 38-480 of the GST Act applies to your sale of farming land. Section 38-480 of the GST Act provides that the supply of a freehold interest in land is GST-free if: a) a farming business has been carried on for at least the period of 5 years preceding the supply on that land; and b) the recipient of the supply intends that a farming business be carried on, on the land. You have stated that you would have the right to continue to farm on that part of the land the developer do not immediately require for subdivision and that you would continue to farm, on the land that was not in the developer’s current or previous stage, till all the land was subdivided. Therefore, according to the information provided we are satisfied that you have carried on a farming business on the land for the last 5 years and that you will carry on a farming business on the land until the time the developer needs the land. The following paragraph has been reproduced from the Goods and Services Tax Industry Issues Primary Production Industry Partnership- Issue 6.2.6 (a) Intent to carry on a farming business. 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. Issue 6.2.7 of the Goods and Services Tax Industry Issues Primary Production Industry Partnership provides that it is the use of the land that is relevant, not the ownership. In looking at the nature of the land being supplied, we look at when the settlement date will occur. You informed us that settlement will occur 42 days from exchange of contract. However, though what you will supply can be considered as farming land on which a business has been carried on for 5 years preceding the supply we note that the developer does not intend to use the land for farming purposes as you have advised that you have been approached by developers, who want to purchase your property, which is now near new subdivisions. There is a new suburb a short distance away. It is clear that the developer has made a conscious decision not to carry on a farming business on acquisition as they will subdivide and sell the land for residential purposes. Therefore, subsection 38-480(b) will not be satisfied. This means that your supply to the developer will not be GST-free under section 38-480 of the GST Act. Section 9-5 of the GST Act refers to taxable supplies and provides that an entity makes a taxable supply if it makes the supply for consideration; and the supply is made in the course or furtherance of an enterprise that the entity carries on and the supply is connected with the indirect tax zone (Australia) and the entity is 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 this case the supply is neither GST-free nor input taxed. Further, the supply will be made for consideration, in the course or furtherance of an enterprise that you carry on, the supply is connected with Australia and you are registered for GST. Therefore, as all of the elements of section 9-5 of the GST Ac are fulfilled your supply will be taxable.