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Generally (NOT ADVICE AND DON'T RELY ON IT);
Capital gains tax small business concessions can significantly or even =
eliminate capital gains tax applicable to the sale of land. If all his =
assets have a value of less than 5 million; and the land has been used =
to run his own business, ie, he hasn't just rented the farm out to =
another farmer; and he been running his own business on it for more than =
half the time he has owned it, he is likely to be eligible for these =
concessions. However if his land was bought before 1985 it isn't caught =
anyway, unless he has changed the name on titles since then. If land is =
owned by a company or trust, there are complications even if bought =
before 1985.
More often tax is greater on the disposal of cattle and machinery as =
usually these have a very low book value. If these are owned by a =
company, tax is a flat 30% on the difference between the sale price and =
book value. However caution must be taken when withdrawing the money out =
of the company as it can be taxed to the individual as well. If owned by =
him personally, it is likely he will have a big tax bill in dollars due =
to the size of profits, but perhaps not as a percentage. I have run the =
numbers several times for clients getting out of farming, considering =
how to minimise tax. Everyone has the immediate thought to spread the =
cattle and machinery sales into different financial years. But, in every =
time I have calculated the total tax over the several years taken to =
wash all profits out, it is almost the same as what it would have been =
had the taken all profits in one year. Funny hey! (And it complicates =
their financial affairs for a few years.) This is due to, largely, the =
benefits of the Averaging system. Superannuation can be useful, more so =
for 2005/06 forward because the "superannuation surcharge" has been =
abolished leaving the tax on super contributions at 15% instead of 30% =
if the surcharge applied. Around $100,000 can be claimed by someone aged =
50+ so at least this part will be capped at 15%. Farm management bonds =
have limited use, because sure tax is saved when they are invested, but =
on withdrawal the tax applicable will often be as much as they saved =
because a person with significant assets will still have significant =
income after the farm is sold and proceeds are invested elsewhere. (And =
technically FMB's cannot be held by someone who is not farming which is =
the case when one retires so it would have to be withdrawn immediately.) =
Prepaying expenses for next year is possible, so long as they are going =
into another business. But if he is retiring is not likely. It is =
important to consider mixing it up a bit.
Hope that helps.
Regards,
Matt Stewart
Victorian Farmers Accountants (nothing to do with VFF)
0359417514
----- Original Message -----=20
From: Tanya Robbins=20
To: Vicdairy-L=20
Sent: Wednesday, March 01, 2006 10:01 PM
Subject: Re: Tax applicable to farm profits
Great post Matt
I'm interested in what strategies a farmer could use to minimise tax =
when a decision has been made to meltdown all the farm assets . I'm =
thinking an old guy of , say , 67 who has about 4M in net farming assets =
and say a third each in land , stock and plant .
Could you give some examples for the benefit of the forum ?
Shawn Robbins
Batemans road
Boorcan=
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<META http-equiv=3DContent-Type content=3D"text/html; =
charset=3Diso-8859-1">
<META content=3D"MSHTML 6.00.2900.2802" name=3DGENERATOR>
<STYLE></STYLE>
</HEAD>
<BODY bgColor=3D#ffffff>
<DIV><FONT face=3DArial size=3D2>Generally (NOT ADVICE AND DON'T RELY ON =
IT);</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>Capital gains tax small business =
concessions can=20
significantly or even eliminate capital gains tax applicable to the sale =
of=20
land. If all his assets have a value of less than 5 million; and the =
land has=20
been used to run his own business, ie, he hasn't just rented the farm =
out to=20
another farmer; and he been running his own business on it for more than =
half=20
the time he has owned it, he is likely to be eligible for these =
concessions.=20
However if his land was bought before 1985 it isn't caught anyway, =
unless=20
he has changed the name on titles since then. If land is owned by a =
company or=20
trust, there are complications even if bought before 1985.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>More often tax is greater on the =
disposal of cattle=20
and machinery as usually these have a very low book value. If these are =
owned by=20
a company, tax is a flat 30% on the difference between the sale =
price and=20
book value. However caution must be taken when withdrawing the money out =
of the=20
company as it can be taxed to the individual as well. If owned by him=20
personally, it is likely he will have a big tax bill in dollars due to =
the size=20
of profits, but perhaps not as a percentage. I have run the numbers =
several=20
times for clients getting out of farming, considering how to minimise =
tax.=20
Everyone has the immediate thought to spread the cattle and machinery =
sales into=20
different financial years. But, in every time I have calculated the =
total tax=20
over the several years taken to wash all profits out, it is almost the =
same as=20
what it would have been had the taken all profits in one year. Funny =
hey! (And=20
it complicates their financial affairs for a few years.) This is due to, =
largely, the benefits of the Averaging system. Superannuation can =
be=20
useful, more so for 2005/06 forward because the "superannuation =
surcharge"=20
has been abolished leaving the tax on super contributions at 15% instead =
of 30%=20
if the surcharge applied. Around $100,000 can be claimed by someone aged =
50+ so=20
at least this part will be capped at 15%. Farm management bonds have =
limited=20
use, because sure tax is saved when they are invested, but on withdrawal =
the tax=20
applicable will often be as much as they saved because a person =
with=20
significant assets will still have significant income after the farm is =
sold and=20
proceeds are invested elsewhere. (And technically FMB's cannot be held =
by=20
someone who is not farming which is the case when one retires so it =
would have=20
to be withdrawn immediately.) Prepaying expenses for next year is =
possible, so=20
long as they are going into another business. But if he is retiring is =
not=20
likely. It is important to consider mixing it up a bit.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>Hope that helps.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>Regards,</FONT></DIV>
<DIV><FONT face=3DArial size=3D2>Matt Stewart</FONT></DIV>
<DIV><FONT face=3DArial size=3D2>Victorian Farmers Accountants (nothing =
to do with=20
VFF)</FONT></DIV>
<DIV><FONT face=3DArial size=3D2>0359417514</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<BLOCKQUOTE dir=3Dltr=20
style=3D"PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; =
BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
<DIV style=3D"FONT: 10pt arial">----- Original Message ----- </DIV>
<DIV=20
style=3D"BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: =
black"><B>From:</B>=20
<A title=3Dtrobbins@westvic.com.au =
href=3D"mailto:trobbins@westvic.com.au">Tanya=20
Robbins</A> </DIV>
<DIV style=3D"FONT: 10pt arial"><B>To:</B> <A =
title=3Dvicdairy-l@unimelb.edu.au=20
href=3D"mailto:vicdairy-l@unimelb.edu.au">Vicdairy-L</A> </DIV>
<DIV style=3D"FONT: 10pt arial"><B>Sent:</B> Wednesday, March 01, 2006 =
10:01=20
PM</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Subject:</B> Re: Tax applicable to =
farm=20
profits</DIV>
<DIV><BR></DIV>
<DIV><FONT face=3DArial size=3D2>Great post Matt</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>I'm interested in what strategies a =
farmer could=20
use to minimise tax when a decision has been made to meltdown all the =
farm=20
assets . I'm thinking an old guy of , say , 67 who has about 4M in net =
farming=20
assets and say a third each in land , stock and =
plant .</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>Could you give some examples for the =
benefit of=20
the forum ?</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>Shawn Robbins</FONT></DIV>
<DIV><FONT face=3DArial size=3D2>Batemans road</FONT></DIV>
<DIV><FONT face=3DArial =
size=3D2>Boorcan</FONT></DIV></BLOCKQUOTE></BODY></HTML>
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