Capital Gains Tax on a farm sale

Question

My wife’s parents who reside and were farmers in England (now retired) purchased a farming property here in the Esperance area in Western Australia 15 years ago (March 2002). My wife and I are farmers (graziers)and we have leased approx. half of this property which was not suitable for cropping, since at a reduced rate as this area needed improving. The other half was leased to another farmer for cropping. Do you think that my wife and/or I could be classed as an affiliate to her parents so that they can qualify as "active" farmers in order to gain exemption from CGT according to having held the property for 15 years and/or the retirement exemption.
Our accountant is not sure on this matter. Regards, Noel and Joanne Willing

Answer

QUESTION
SUBJECT: Capital Gains Tax on a farm sale My wife’s parents who reside and were farmers in England (now retired) purchased a farming property here in the Esperance area in Western Australia 15 years ago (March 2002). My wife and I are farmers (graziers)and we have leased approx. half of this property which was not suitable for cropping, since at a reduced rate as this area needed improving. The other half was leased to another farmer for cropping. Do you think that my wife and/or I could be classed as an affiliate to her parents so that they can qualify as "active" farmers in order to gain exemption from CGT according to having held the property for 15 years and/or the retirement exemption.
Our accountant is not sure on this matter. Regards, Noel and Joanne Willing

Affiliate, in this case, is generally used to allow a person to hold assets in different entities for asset protection purposes but still group them together as business assets. Children under 18 are taken to be affiliates in certain cases http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s152.47.html but that doesn’t help you here. It is about acting in concert, in effect that your in laws really had control.

I can’t see a way clear for you to be considered affiliates from the limited amount of information you have provided. The relevant legislation is below, maybe your Accountant knows something unusual about your circumstances that may fit.
Consider that if you were to inherit the property and later sell it. The test would all be about how you have used the property since inheriting it.

INCOME TAX ASSESSMENT ACT 1997 – SECT 328.130
Meaning of affiliate
(1) An individual or a company is an affiliate of yours if the individual or company acts, or could reasonably be expected to act, in accordance with your directions or wishes, or in concert with you, in relation to the affairs of the * business of the individual or company.
(2) However, an individual or a company is not your affiliate merely because of the nature of the business relationship you and the individual or company share.
Note: For small business relief purposes, a spouse or a child under 18 years may also be an affiliate under section 152-47.
Example: A partner in a partnership would not be an affiliate of another partner merely because the first partner acts, or could reasonably be expected to act, in accordance with the directions or wishes of the second partner, or in concert with the second partner, in relation to the affairs of the partnership.
Directors of the same company, or the company and a director of that company, would be in a similar position.
Guide to Subdivision 328-D

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