On 16 November 2011 the Commissioner issued GSTD 2011/2 – Goods and services tax: can a ‘farming business’ be carried on, for the purposes of paragraph 38-480(a) of the GST Act where there has been a cessation of routine farming activities by the supplier for a period of time as a consequence of a decision to sell the land?
The Commissioners says that the answer can be yes, although the question will be one of fact and degree depending on the circumstances of each case.
There is nothing particularly surprising in the determination, save for the apparent approach of the Commissioner to equate the term “carrying on a farming business” with the more expansive concept of “carrying on an enterprise”, so as to include acts done in the the commencement and termination of the farming business.
Paragraph 38-480(a) relevantly provides that the supply of of a freehold interest in land is GST-free if “the land is land on which a *farming business has been *carried on for at least the period of 5 years preceding the supply.” Section 38-475(2) provides that an entity “carries on a farming business” if it carries on the business of [those matters listed at paragraphs (a)-(d)].
In the Determination, the Commissioner adopts the following approach:
- if an entity carries on a business consisting of one of the classes of farming, the entity is carrying on an enterprise that is a farming business;
- carrying on an enterprise is defined in s 195-1 to include ‘anything done in the course of the commencement of the enterprise’;
- accordingly, for the purposes of paragraph 38-480(a), carrying on a farming business includes all the routine farming activities carried out on the land together with any other activities related to the commencing, conducting and terminating the farming business.
While one can understand the logic of this approach, I am not sure that it is consistent with the words used in the act. The provisions requirements in 38-475(2) as to when an entity “carries on a farming business” are quite specific, whereas the broad definition of “carrying on” in s 195-1 is limited to “enterprise”. In this regard, the view in the Determination of what constitutes the carrying on of a farming business may be broader than actually provided for in the legislation. This will probably not be an issue for taxpayers as it potentially serves to increase the scope of the GST-free exemption for farmland.
Some matters not dealt with in the Determination, which may cause issues down the track are:
- how long is the “period of time” for which an entity can cease routine farming activities before selling the land?
- Can an entity cease farming activities and effectively leave the property “dormant” while trying to sell the land, or do steps have to be taken towards trying to sell the land before ceasing the farming activities?