GST and sale of farmland where land not farmed for preceding 5 years

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 a farming business has been conducted on the land, but not for the five years immediately preceding the sale?

No, the entity is not making a GST-free supply of farmland under section 38-480 of the GST Act, where a farming business has been conducted on the land, but not for the five years immediately preceding the sale. The entity is making a taxable supply under section 9-5 of the GST Act.

The entity is a farm operator that holds a freehold interest in 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 a period of five years, but not for the five-year period immediately prior to the sale.

The entity is registered for goods and services tax (GST) and the supply satisfies the other positive limbs of section 9-5 of the GST Act.

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.'

Of particular importance in this case is the meaning of the phrase 'preceding the supply' in paragraph 38-480(a) of the GST Act. The word 'preceding' is not defined in the GST Act. As such, it is necessary to examine the everyday meaning of that word. The Macquarie Dictionary (1997) states that, amongst other things, precede means: 'to go before, as in place, order, rank, importance or time'.

Paragraph 38-480(a) of the GST Act refers to 'the' period of five years preceding the supply. If the provision said 'a' period of five years preceding the supply, then any period of five years before the sale would suffice. As such, the word 'the' specifically refers to the period of time immediately before the supply.

Consequently, the entity will not be making a GST-free supply of farmland under section 38-480 of the GST Act, as the farming business has not been carried on for the five-year period immediately preceding the supply.

The entity is registered for GST and the supply satisfies the other positive limbs of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act.