GST ON FARMLAND SALES
The Goods and Services Tax (“GST”) is a broad based tax of 10% on the supply of most goods, services and other items sold or consumed in Australia unless they are GST-free or input taxed.
A contract for the sale of farmland should include a reference to the liability or otherwise for collection of GST. Failure to refer to the GST component of a sale could see the seller paying GST from the proceeds of the sale rather than having collected it in addition to the sale price. For the buyer it could affect the amount of duty assessed and payable.
Sale of Farmland
The sale of farmland (defined as a “supply”) is GST-free if both:
- the land was used for a farming business for at least 5 years immediately before the sale; AND
- the buyer intends to use it for a farming business.
Words to this effect should be stated on every farm sale contract.
Section 38-480 of the A New Tax System (Goods and Services Tax) Act 1999 (“the Act”) provides for an exemption (of GST) for the supply of a freehold interest in land based on the use of that Land. A freehold interest in land generally includes the land as described in the certificate of title as well as any buildings, trees, crops and minerals attached to the land. As not all land is used for farming purposes, it may be necessary to show that a particular parcel of land is in fact “farmland” for the purpose of the Act and to qualify as GST-free. This may be particularly relevant where a small parcel of land is being sold.
If you have doubt about whether a particular small property is Farmland as defined in the act please call WA Property Lawyers who will be able to assist with the determination.
Sale of a Farmland as a Going Concern
Where farmland is sold on a walk in walk out basis (such as pastoral leases) the seller must provide ALL that is required to carry on the business of farming the land from the date of settlement- such as land, plant, machinery and livestock etc – then the transaction will be GST-free under the Going Concern exemption.
Sale of Farmlets
Farmlets generally are subject to GST when they are sold. However, many farmlet owners are not and do not need to be registered for GST and if this is the case then GST is not applicable.
Sale of Subdivided Farmland
The sale of subdivided land used for a farming business for at least 5 years is GST-free if both:
- it is permissible for the land to be used for residential purposes; AND
- the supply is made to an associate of the supplier- such as a close relative or closely connected company or trust- for less than market value.
Take home message: It is important to have your proposed contract reviewed before signing to ensure you have made allowance for any GST liability or that your transaction is in fact GST-free. WA Property Lawyers can assist with preparation or review of your contract for GST purposes and also alert you to many other potential issues you should consider.