Selling the Farm Basics

Question

I have a client who signed a contract to sell his farm (going concern) on the 16th of June 2022. The settlement didn’t take place until the 29th of July 2022.

In the contract, the plant & equipment were allotted a ‘nominated’ price of $100k.

In the contract, the livestock were allotted a price of $900k.

That left the land with a sale price of $4m.

What do I enter into the P&L and Balance Sheet in the 2022 financial year (i.e. before settlement)?

What year do I dispose of the plant & equipment (which was all written down to NIL by the time the contract was signed)?

Can I dispose of all the P&E for NIL and add the $90k back to the sale price of the land?

What year do I dispose of the livestock in?

Do I just report the capital gains on the sale of the land itself in the 2022 tax return & financials?

Do I have to cancel primary production averaging upon the sale of the land or upon the sale of the stock? Or does it just cancel itself out when my clients lodges future tax returns with NIL primary production income?

Thank you.

Shereen


Answer

What do I enter into the P&L and Balance Sheet in the 2022 financial year (i.e. before settlement)? The CGT event is just an abnormality really to the real world date. As far as the financials are concerned the business still owns everything but you may want to consider a note in the accounts regarding an after balance date event.

What year do I dispose of the plant & equipment (which was all written down to NIL by the time the contract was signed)? As the plant and equipment has been subject to depreciation it is specifically excluded from CGT and treated on revenue account, specifically a balancing adjustment. In other words it only applies to the 2023 figures because it is only the CGT legislation that has this silly date of signing clause.

Can I dispose of all the P&E for NIL and add the $90k back to the sale price of the land? No, it is there in the contract.

What year do I dispose of the livestock in? 2023 and this is just a normal sale of “trading stock” It will be subject to GST if registered.

Do I just report the capital gains on the sale of the land itself in the 2022 tax return & financials? In the 2022 tax returns not the financials. Note if you haven’t got the CGT down to zero through the small business CGT concession we need to talk further.

Do I have to cancel primary production averaging upon the sale of the land or upon the sale of the stock? Or does it just cancel itself out when my clients lodges future tax returns with NIL primary production income? Technically still a primary producer while they own the stock. I have never heard of actually cancelling averaging, there is an option to opt out. I would leave it to sort itself out once there is no primary production income.

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