Hiya,
We live on a farm in Melton South and it is soon to be subdivided into blocks of land. Developers are already making us offers to buy the land and we anticipate selling it in the very near future. We own almost 40 acres of land and as a result will be receiving a nice sum of money for it. The only problem is that we’re going to be paying a ridiculous amount of CGT (around $4 million) and I was wondering if there was any way at all we could reduce this. We understand that our home and around 4.9 acres are exempt from CGT. This is the first opportunity in our lives we’re going to have to actually own some wealth and it’s devastating to see that we’re going to lose so much of it to CGT.
This is my first post and I don’t really understand much about CGT. We bought the property in 1990 so at the very least I know that we’re not exempt from CGT.
Any information anyone can provide us with would be most appreciated.
Cheers,
Lisa
hi Lisa
You need to get expert advice on this considering the sums. Use someone good.
I am not sure there is much you could do, but there may be something involving small business concessions or farming relating.
If you property has more than 1 title you may be able to sell in separate tax years too. Or you may be able to sell to a trust now, one that you control, at a lower transfer amount and then the trust sell to developers later on – stamp duty etc now may be less than the tax later.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Terryw,
Thanks for your reply.
I live overseas and am home visiting for Christmas. Whilst here I’m trying to investigate my parents’ options because neither of them have any idea what the best thing to do is. I myself have a scientific background so all this property jargon is pretty much going over my head too! I am trying to read as much as I can to educate myself (just finished Steve McKnight’s Book and that’s how I came across this forum) but I’m not moving forward at any great pace.
My parents have been in touch with both a lawyer and an accountant but they have both been random selections from the phone book. Unfortunately my parents don’t know anyone who’s “good”. Both the accountant and the lawyer have said that there isn’t anything my parents can do to avoid paying CGT. I don’t know if there’s much point in getting a second opinion.
I don’t understand what you mean by selling to a trust now. What exactly is a trust? And if we sold it to a trust wouldn’t we still have to pay CGT?
Please excuse my lack of knowledge, this is a huge learning curve for me!
Thanks,
Lisa
Hi lisa,
the thought of paying 4mil in tax makes my stomach turn, I’m sure it does yours also. As terry said, you will need a good accountant to come up with a good plan. If its difficult to get a recommendation for one, then pick 3 from the phone book.. even if 2 of them waste your time and 1 of them saves you 1% CGT thats a win right?
I hate to be a naysayer, but there’s no way to reduce your CGT liability in any meaningful way.
If you were selling a couple of houses, then yes, selling them in different years would help, in this case it would save you something in the region of $50k.. In a few months the lump sum your getting would accrue that in bank interest. The effect is greater if you were to say, subdivide the property into blocks and sell them off over a greater period of time. Over 20 years would save you about 25% in CGT. (assuming no major changes to tax law) But… its not worth it. Your better off having 4.75mil right now than 6 mil (+CPI +appreciation) over the next 20 years.
Transfering to a trust wouldnt work, its a “non arms length” transaction, and as such the tax office would assign “fair market value” to the transaction.
Interestingly.. whilst you might not find a way out of paying your CGT, you could make it work for you as best you can. The financial year ends on the 30th of June, and your taxes are due 9 months later, on the 31st of March. If you sign the contract of sale on the 1st of July (first day of the year) then the tax on that sale wouldn’t be payable for 21 months (less three months for settlement to occur). So that’s a full 18 months in a term deposit or something.
Lisa
You should get a professional,. I have a guy, ex ATO of 26 years. I will ask him if he could help.
Wiht a trust I was thinking you could sell at market values now quickly before the value increases and then you would have the trust sell later for a higher amount. But this may not be worth it unless there is a large increase in value.
Is the property a farm or being used as a farm?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Mr5o1,
Thanks for that info, it makes a lot of sense.
I was reading through some of the paperwork from the lawyer and it explained how the contract can be signed after 1st July 2011 in order to prolong the time required to pay CGT. I had no idea what this meant but your explanation makes perfect sense. It is good of the Developer to provide such an option and we’ll be sure to use it to our advantage.
Hi Terryw,
I would be interested to hear what your ex ATO friend had to say about the matter. If you wouldn’t mind asking him I would really appreciate it.
The property is a farm but it’s not being used to produce anything that would bring in income, it’s more of a hobby farm.
I believe the land here will certainly increase in value in the future but I don’t know how long that will take. A farm is a huge responsibility for my parents and it’s now a bit too much for them to handle and that’s why they want to sell sooner rather than later.
I think our lawyer mentioned that the CGT may be reduced because the CGT-exempt house plus two hectares is actually worth more relative to the rest of the property. I didn’t think the cost of your house impacted the CGT owed on the rest of the land. I will look into this.
Anyways, thanks again to both of you for your advice.
Lisa
Yes, the house and adjacent land up to 2 hectares would be exempt. So perhaps try to estimate the value of that and the value of the whole property and then work more acrurately what the CG will be. From there you can plan your strategy.
I will speak to my accountant tomorrow about another matter and mention it to him.
When do you think your parents will be selling?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terryw,
Thanks, will do.
I imagine my parents will sell up within the month if all goes well.
Lisa
Lisa,
I spoke to my tax man and he said there is not much they can do. Just try to obtain a valuation for as high as possible for the 5 acre portion surrounding the house as this would be exempt from CGT/
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terryw,
Thanks, that’s what we’re aiming to do.
Lisa
Avoid CGT? Buy CF+ (yes they exist) and dont sell. Just research well in terms of where you buy so you get a good growth return thats the key.
morrissue70 wrote:Avoid CGT? Buy CF+ (yes they exist) and dont sell. Just research well in terms of where you buy so you get a good growth return thats the key.This won't help – actually not selling will help, but not the buying CF+ bit
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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