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Farm Land

Will the sale of land used for primary production be exempt from GST?

There is no general exemption for land used for primary production. However, there are a number of provisions which might make the sale of land used for primary production GST-free in certain circumstances.

Supply of going concerns (s.38-325) will be GST-free if:

• the supply is for consideration;

• the recipient is registered or required to be registered;

• the parties have agreed in writing that the supply is a supply of a going concern;

• the supply includes all things necessary for the continued operation of the enterprise (the failure of the typical farm sale to satisfy this requirement is the reason for the existence of s.38-480); and

• the supplier carries on the enterprise until the day of supply.

   

Supply of farmland for farming (s.38-480) will be GST-free if:

• the land is land on which a farming business has been carried on for at least a period of 5 years preceding the supply; and

• the recipient of the supply intends that a farming business be carried on, on the land.

Subdivided farmland (s.38-475). Supply of potential residential land will be GST-free if:

• the land is subdivided from land on which a farming business has been carried on for at least 5 years; and

• the supply is made to an associate without consideration or for a consideration less than the GST inclusive market value of the supply.

(‘Potential residential land’ is defined to mean land that is permissible to use for residential purposes but which does not contain any buildings that are residential premises.)

Will the lease of land used for primary production be exempt from GST?

The ‘supply of farm or farmland for farming’ exemption does not apply to conventional leasehold interests. A lease of farmland (unless a ‘long term lease’ - 50 years) will be treated the same, for GST purposes, as any other commercial lease.

A client is about to purchase a farm. The farming activities he intends to carry on will not satisfy the ATO's criteria for a farming business so he will not be a farmer for income tax purposes. Does this mean the purchase itself will not attract the GST-free treatment under s.38-480 (supply of farmland for farming)?

It appears so. If the planned activities do not constitute a farming business for income tax purposes, the ATO will take the view that they do not constitute a farming business for GST purposes. For s.38-480 to apply, the ATO is looking for a genuine farming business to be carried on either by the purchaser or by some other party, which is capable of operating on a stand alone basis.
 
 

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