Case Study: Capital Gain Implications For Farming/Residential Property

One of our clients approached us requesting advice regarding the sale of their farm land. They had been using the land as their place of residence as well as for a cattle business.

In order to calculate the capital gain implications we first had to divide the land into the portion that was business related and the portion which was private. The portion of the land which was used privately would be exempt from capital gain tax under the main residence exemption.

Along with the property we were able to claim 2 added hectares under the main residence exemption as it is classified as land adjacent to dwelling and for the most part would have been used for private and domestic purposes. With the portion of the land subject to capital gains tax now established our client was looking at a considerable amount of tax payable.

However through the utilisation of small business entity concessions we were able to reduce the tax payable to nil.
In this instant our client was entitled to apply the following concessions:

  • 50% active asset reduction – As the land had been used and owned by the business it was entitled to a 50% discount on the capital gain
  • Small business retirement exemption – As our client was over 55 years old he was able to receive an exemption on the entirety of the remaining gain and was not required to contribute the remaining exempt amount to his superannuation fund

As a result there was no tax payable on the sale of the farm and all proceeds would be received by the client. If you need assistance with this or matters like it, please contact our office on (03) 9603 0066.

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