Sunday, 4 May 2014

Small Farming: Australian Taxation Issues

You cant farm taxation.  But, if you are not careful, taxation can farm you.

Enlighten Festival - Canberra 2014

You may have bought a small farm on the outskirts of a town and you may treating the rest of the acreage as an extended back-lawn, simply for grazing a couple of pets.  Or you may be an elderly farmer who is gradually winding back farming activities - perhaps ceasing them entirely - perhaps leasing the productive parts of the land to another person.

If you are doing these things not knowing of the taxation consequences - these could be big mistakes. There are a couple of pitfalls you need to consider.

In Australia, unlike a house in town, when your farm is eventually sold, a big chunk of the sale price might get eaten up in Capital Gains Tax (CGT) and in Goods and Services Tax (GST).   If, at time of sale, you still have a mortgage, much of your equity in the property might disappear this way.

The good news is that the effect of both taxes can be legally minimised if you are actively carrying on some form of farming activity on your land - and you have been undertaking these functions over a considerable period of time.  There is a range of small farming activities that allow you to use your land productively, earn income and minimise your long term taxation liability.

Capital Gains Tax (CGT) applies to any property bought after 20 September 1985.  The relevant date here is the date of the contract of sale, not the later land title registration date.  Copies of contracts of sale can be difficult to track down.  Try your conveyancer, your local council or your state taxation office (in NSW this is the Office of State Revenue).  The effect of CGT can be reduced by a range of factors - eg the period held, the fact that it has been used for business purposes and whether it is used as the person's residence.  The impact of FBT can be reduced by business purposes.

Everyone's circumstances will be different.  Get in touch with an accountant and spend an hour with them working out what you need to do.  Think carefully before simply leasing your property and get advice from a professional - leasing may not effectively minimise your liability (and if the lessee does not carry on farming activity you may be exposed to significant losses).  Who knows, instead of mowing those acres on your ride-on, you may be able to fatten lambs or cattle, or establish an orchard or timber lot.

Start making a plan today.

Peter Quinton
Palerang   May 2014

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