Ask Paul: Will selling our farm ruin our retirement plans?
After decades on the land, this couple plans to sell their farm to retire. Could CGT changes mean a bigger tax bill - and less for retirement - when it's time to sell?
Reader question
Hi Paul, I have a question about a family farm under personal ownership (not in a trust or company structure).
It was bought before the 1985 capital gains tax exemption.
Would it now be impacted by capital gains tax if the owners sell it to fund their retirement? - Naomi
Paul's response
Hi Naomi, I can give you general guidance here, but you must speak with your tax adviser before making any decisions.
Farms can be quite complex from a tax perspective and require advice tailored to your personal circumstances.
There are several concessions that could mean you pay little or no CGT if you sell after July 1, 2027.
One is the 15-year small business CGT exemption. If you are aged over 55, retiring, and have actively operated the farm as a primary production business, you may be able to pay no CGT at all.
There are also other small business concessions, including the active asset reduction and the CGT retirement exemption.
In addition, the main residence exemption may apply to your home on the farm and the surrounding land used for private purposes, generally up to two hectares.
So yes, it is possible that a farm held in personal names could become partially taxable under the proposed rules if it is sold after July 1, 2027, assuming the legislation passes and is not altered by a future government.
In that situation, a valuation would typically be needed as at July 1, 2027. Any increase in value after that date could potentially be subject to the new CGT rules, with inflation taken into account when calculating the taxable gain.
As you can see, this is an area where professional tax advice is essential before taking any further steps.
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