Tax issues for rural acreage

[Ed Barton]

I have a relative who recently purchased a PPOR on 150+ acres. It is not income producing. It has a house and shed-house close to each other and I think one more farm type shed.

Is there anything she and her partner can claim as deductions related to the 'farm' against their normal PAYG? They are not in an area eligible for a zonal offset. I'm assuming no.

Second question. If I have it correct only 2 hectares is eligible for the PPOR CGT exemption. Should they get a valuation now that splits it into the 2 hectares and the rest for future CGT calculations? Would a portion of the interest paid on their mortgage relating to the non exempt land adjust the cost base in a future CGT event?

Hope these questions are clear.

 

[Terry_w]

Julia Hartman's book covers some of this with some good tips. 2 hectares is exempt from CGT so you could get a valuation done on the best 2 hectares and count this as the main residence.

Is the land income producing?

Look into the land tax issues too

 

[Ed Barton]

Julia Hartman's book covers some of this with some good tips.

Thanks Terry. What's the title of the book?

2 hectares is exempt from CGT so you could get a valuation done on the best 2 hectares and count this as the main residence.

Most of the value would be in the area with the house and house/shed. Probably 80%. The area with the house is quite nice, but the rest of the land is pretty crappy. Goats would have trouble surviving.

Is the land income producing?

Not by my standards, but the ATO may disagree (I doubt it). My niece sells a couple of dozen eggs by the side of the road a week.

Look into the land tax issues too

I hadn't thought of that - thanks.

 

[Terry_w]

Look into primary producer status as there are tax concessions both state and federal - the chooks would need to be more productive though.

The book is Winning Property Tax Strategies

 

[Paul@PFI]

If there is no assessable income then there can be no deductions. Income tax requires that deductions be claimed in earning assessable income. A profit isnt mandatory (non-commerical loss rules are easily overcome in a farm venture)..The problem is there actually isnt a farm at all. Its just farm land. Or in other words a VERY big front and back yard. . Selling a few pumpkins on the side of the road isnt considered primary production activities. Or a few chooks, or agistment.

Many people argue primary production and get defeated when they cant demonstrate a dominant use of the land for primary production activities. More info here. You must apply for it rather than claim an exemption and not register in NSW. Other states such as QLD are all fairly similiar but may be more lenient in their approach. Check the Office of State revenue in the state of the land.

Where a farm is operated and passes the samll business tests etc the CGT concessions can fall under the small business rules and extra concessions apply. After 15 years it can be CGT free in some instances.

 

[Terry_w]

There are also various stamp duty discounts or exemptions with primary production land.

I had a client once that tried to claim he was a primary producer because he had 2 beehives on this property.

 

[Ed Barton]

Thanks guys pretty much what I thought, but worth checking.

 

[Paul@PFI]

There are also various stamp duty discounts or exemptions with primary production land.

I had a client once that tried to claim he was a primary producer because he had 2 beehives on this property.

He wanted to bee a primary producer ?

 

[Terry_w]

He wanted to bee a primary producer ?

Yes. He didn't like the sting in the land tax bill

 

[Paul@PFI]

He may have been unsuccessful as his approach was wrong. Treat the land use as a medical expenses offset issue or a medical practice service trust(Phillips trust) ?? He demonstrated he had hives didnt he ??

Lateral thinking in tax for a solution