Property
Farmland supply
A farmland supply is the sale of land used for farming that can be GST-free if the buyer intends to keep farming it and the other conditions, including a written agreement, are met.
The sale of farmland can be GST-free if certain conditions are satisfied. The aim is similar to the going concern concession. A farming business changing hands should not have to deal with GST that the buyer would claim back, so the law removes GST on qualifying sales of land used for farming, provided the buyer will keep using it that way.
The main conditions are that the land has been used for a farming business for at least the five years before the sale, whether by the seller or by others such as a lessee, and the buyer intends that a farming business be carried on, on the land. The seller and buyer must also agree in writing that the supply is of farmland. The buyer does not need to carry on the farming themselves, because they can lease it to another farmer, provided the intent is that farming continues.
What counts as a farming business is defined in the legislation and includes activities such as growing crops, raising livestock, cultivating fruit and vegetables, and certain other primary production activities. Land used for non-farming purposes, such as a hobby farm with no commercial purpose, or land used for a residence only, is unlikely to qualify. If only part of a property is used for farming, the sale may need to be treated in parts.
Where the conditions are met, the sale is GST-free. This means the seller reports the sale as GST-free on the BAS and can still claim credits for the GST on related costs, such as legal fees and agents' commission. The buyer pays no GST on the land, which reduces upfront cost and avoids the need to claim a refund after settlement. But where the conditions are not met, GST may apply to the full price if the seller is registered.
Farmland supply sits alongside the going concern concession, and sometimes both can apply, for example when a working farm is sold with its equipment and stock. The rules differ in important ways. The going concern test turns on continuity of an enterprise, while the farmland test turns on the five-year use of the land and the buyer's intention. A sale might qualify under one and not the other, so the right path needs to be checked.
Common mistakes include not recording the written agreement, forgetting that the five-year history must be proven, and assuming that the buyer will not need to meet any test. Also, sellers should not assume that a GST-free label on the contract is enough if the facts do not support it, as the ATO can examine the evidence after the sale.
This is general information. Property rules are detailed, so confirm your own position with the ATO or a registered tax professional.
Worked example
The Nguyen family sells a 200-hectare cattle property for $2,200,000 to a neighbour who will keep running cattle. The land has been farmed for more than five years, the buyer intends to continue farming, and a written agreement says the sale is of farmland. The sale is GST-free, so no GST is payable. If it were taxable, GST would be $2,200,000 divided by 11, which is $200,000.
Practical tips
- Keep records proving the five-year farming history, such as livestock, crop and lease records.
- Include the written farmland agreement in the contract before settlement.
- If only part of the property is farmed, get advice on whether the sale needs to be split.