Farm sales spark timely tax re­minder


South Waikato News - - RURAL DELIVERY - By ANNA BEN­NETT

There has been a marked in­crease in the sale and pur­chase of farms in re­cent months. The av­er­age price per hectare has risen and we be­lieve de­mand is in­creas­ing. This raises the im­por­tance of pur­chasers and sell­ers (ven­dors) to con­sider the tax con­se­quences of th­ese trans­ac­tions. Some points to con­sider in­clude: Good and Ser­vices Tax All land trans­ac­tions will be zero-rated for GST pur­poses if both the ven­dor and pur­chaser are reg­is­tered for GST. There is a Sched­ule 2 form in the sale and pur­chase agree­ment that should be com­pleted for GST pur­poses. There may also be items in the agree­ment e.g. Fon­terra shares that are ex­empt from GST. De­vel­op­ment ex­pen­di­ture The ven­dor should pro­vide de­tails of cap­i­tal de­vel­op­ment ex­pen­di­ture in the sale and pur­chase agree­ment. The pur­chaser can then con­tinue to claim de­pre­ci­a­tion on th­ese items. De­pre­ci­a­tion Any as­sets that the ven­dor sells where they have claimed de­pre­ci­a­tion may re­sult in de­pre­ci­a­tion re­cov­ered. This de­pre­ci­a­tion re­cov­ered amount will at­tract in­come tax. Some of the ma­jor items in­clude the cow­shed and farm build­ings.

The date of the sale or pur­chase should be con­sid­ered for de­pre­ci­a­tion pur­poses, this will de­pend on the bal­ance date of the ven­dor. Re­lated party cap­i­tal gains If a com­pany is sell­ing the farm to an as­so­ci­ated per­son or en­tity it is im­por­tant that you check with your ac­coun­tant if this has in­come tax im­pli­ca­tions. Re­lated party cap­i­tal gains are an in­come tax li­a­bil­ity that arises on the cap­i­tal profit of an as­set when it is sold from a com­pany to a re­lated per­son or en­tity. Fon­terra shares Fon­terra shares may or may not be in­cluded in the sale and pur­chase agree­ment. If they are in­cluded the val­u­a­tion method of the shares needs to be agreed to and in­cluded in the agree­ment be­fore sign­ing. For ex­am­ple the value of the Fon­terra shares may be the value of the shares at set­tle­ment date or at an agreed share price. Grass cover The ven­dor prior to leav­ing the farm should take pho­tos, and/or have an in­de­pen­dent farm con­sul­tant as­sess the level of grass cover on the farm. This will give an in­de­pen­dent opin­ion as to whether the terms in the Sale and Pur­chase agree­ment have been ad­hered to.

This will min­imise the re­sults of any po­ten­tial dis­putes. Live­stock Both par­ties should en­sure in­calf guar­an­tees have been at­tained. The ven­dor and pur­chaser should check live­stock val­u­a­tion meth­ods with their ac­coun­tant to re­view any pos­si­ble tax con­se­quences.

Anna Ben­nett, Di­rec­tor Coop­erAitken, Mata­mata and Mor­rinsville based ac­coun­tancy firm

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