CGT exemption and farmland: Ask Margaret

Hi Margaret, my wife & I live on 50 acres we bought the property 20 years ago , built a house & lived in since. We have 10 cows which we make a little money on each year & is the only income of the property. Our main income is away from the property (apart from the office & shed) my question is would we be CGT exempt because we use the other 45 acres for farming, although it's not our main source of income?

Answer:

The answer to this question has many parts and depends on a number of circumstances, and so I checked with Property Success tax expert Ian Rodrigues to see what he thought about it.

The first this to check is the actual date that you purchased the property.  It appears to be after they introduced the Capital Gains Tax rules but that is worth checking first as if it was before, then everything changes.  It's also important to know if you bought the property or if it was passed to you, perhaps through an inheritance as this impacts as well.

The Principal Place of residence exemption should apply to the house and surrounding land up 2 hectares (about 5 acres). You mention an office and shed - were these rented out, or did you use them for conducting any kind of business, and subsequently claim any proportional deduction on them?  If you did then this will mean that a part of your principal place of residence will be considered to be liable for capital gains tax and this will need to be established.

The rest of the land outside the 5 acres are subject to CGT regardless of how they were used. There are major issues to consider here in regard to:-

        1. was farming a business for tax (and so, what went into your tax returns?). Small business CGT concessions could apply here and
        2. what is the valuation split of PPOR and acres? Sometimes the house is the substantial part of these acres and therefore carry the much of the value of the entire block, and at other times the acres are prime land and therefore make up a substantial part of the calculations. 

Your situation is a little complicated,  and it is absolutely critical that you get advice based on all the facts of this situation. Although the outcome may end up the same, you need some serious planning put in place, as you may have access to small business CGT rules and super rollover rules too. 

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