GST and Sale of farmland after temporary cessation 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), where there has been a temporary cessation in the farming of the land during the five years preceding the supply?

Yes, the entity is making a GST-free supply of farmland under section 38-480 of the GST Act, where there has been a temporary cessation in the farming of the land during the five years preceding the supply.

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.

During that five-year period, several events caused the entity to temporarily cease the daily activities of the farming business. The land was left fallow for a period of two months, poor weather forced farming activities to cease for six weeks, and holidays were taken for a period of two weeks every year.

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 preceding the supply despite temporary cessations in the activities of the farm. The temporary cessation of daily activities to leave the land fallow, take holidays and for poor weather does not mean that the farming business has ceased altogether. The intention of paragraph 38-480(a) of the GST Act is not to preclude such farmland from being sold GST-free.

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.]