In recent times, post-covid many clients seem to have bought a farm and many of these clients friends have told them that if it’s a working farm it pays no tax. Unfortunately this is not quite right!

To start – You have a property zoned rural and you have a primary production business on it:
• If you are running a business then of course income tax will apply.

• If the dominant use of your property is primary production then you will likely to be exempt from NSW Land tax.

• When you sell your property then the sale is liable for CGT.
• If this is your principal residence/home then it and up to 2 ha of land may be exempted from CGT (most clients have a home in Sydney and hence this does not apply)
• Is your land is predominantly used in a primary production business? If so then the CGT small business exemptions may apply to reduce/eliminate your CGT payable.

There are steps to satisfy before the CGT small business exemptions can be considered:
1. Are you running a business, some factors to consider;
• Is there sufficient scale/activity to show that you are running a business and not a hobby.
For cattle, you can get an agronomist to determine the number of cattle or trees, crops etc. that your land can support.
• Is there a profit making intention? Have you ever made a profit?
• Is the business correctly structured and are you running the business in a systematic and organised manner?

2. At the point of sale do you satisfy one of the 2 eligibility tests?
• Is your aggregated business turnover less than $2M.
Aggregated turnover includes other businesses you control and hence many clients exceed $2M when they include their main businesses.
• Are your net assets less than $6M tests?
Many clients exceed this with recent increases in asset values, you exclude certain assets like your home and super.

So CGT is not easily avoided and you should obtain advice about your specific circumstances.

VJC Accounting

General Advice warning: the information in this article is general in nature, it is not advice specific to your needs. If you want to act upon the information in this article, then you should seek advice from a qualified professional. VJC accepts no liability to any party for acting from this information unless they have sought advice in a formal engagement with VJC for this purpose.