The answer is sometimes.

Where a farming enterprise has been carried on a rural property, for a minimum of 5 years and where the purchaser intends to carry on a farming operation, then generally the sale will be exempt from payment of GST.

A recent matter highlighted the importance of ensuring that each transaction is examined on its facts and generalisations such as the above rule, are not adopted on a wholesale basis.

The facts: The sellers had operated a farming enterprise (sheep) on their property for many years. They had agreed to sell 15 acres from their rural property to a Purchaser.

The purchaser indicated that he intended to run sheep on the property and has been advised that the GST farmland exemption will apply. That is, no GST is payable in addition to the purchase price.

At first glance this looks to be a reasonable proposition, as the seller has run a farming business for more than five years and the purchaser wishes to run sheep on the property.

The real issue to enable you to determine whether the GST exemption will apply to this sale, is whether the purchaser intends to carry on the business of primary production being the carrying on of a business of maintaining animals for the purpose of selling them for their bodily produce and natural increase.

The issue is whether the running a few sheep on a small block of land amounts to the purchaser “Carrying on a business”.

Factors which the Courts have indicated are relevant in indicating whether a primary production business is being carried on include:

a. Does the activity have a significant commercial purpose or character;
b. Does the taxpayer have more than just an intention to engage in business;
c. Is there repetition and regularity of the activity;
d. Whether the activity is similar to other businesses carried on in that line of business;
e. Is the activity planned, organised and carried on in a businesslike manner;
f. Is the activity directed at making a profit;
g. What is the size scale and permanency of the activity; and
h. Is the activity better described as a hobby, form of recreational or sporting activity?

In the above factual scenario, the running of a few sheep is unlikely to satisfy the commerciality test of “carrying on a business” and accordingly the sale would not be GST free for the sale of farm land.

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