GST and sale of farmland where sale has caused a break in farming

Is the entity, a farm operator that is selling its farmland, making a GST-free supply of that farmland under section 38-480 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), despite the fact that the entity ceases its farming business as a consequence of the sale?

Yes, the entity is making a GST-free supply of farmland under section 38-480 of the GST Act, despite the fact that the entity ceases its farming business as a consequence of the sale.

The entity is a farm operator that holds a freehold interest in its farmland. The entity is selling its freehold interest. The purchaser intends that a farming business be carried out on the land. The entity has operated a farming business on its farmland for the period of five years immediately preceding the supply; however, there has been a recent break in the farming activities as a consequence of the sale process.

The entity is registered for goods and services tax (GST).

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: (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.'

The issue in this case is whether a farming business has been carried on for at least the period of five years immediately preceding the supply (as per paragraph 38-480(a) of the GST Act), despite a temporary cessation in the activities of the farm due to the sale process.

It is considered that a temporary cessation in farming activities due to the sale and transfer of the farming business will not prevent the supply from being GST-free under section 38-480 of the GST Act. Therefore, as the entity has met the remaining requirements of section 38-480 of the GST Act, the supply is GST-free. [NOTE: The five-year requirement outlined in paragraph 38-480(a) of the GST Act may not be satisfied where there has been a conscious decision to cease farming. This is a question of fact that must be determined on a case by case basis.]