Some helpful tips when selling, purchasing farms

If you are considering buying or selling a farm there are a number of important factors to consider. We recommend both the purchaser and vendor ensure that their solicitor and accountant review all sales and purchase agreements (agreement) before signing.

Good and Services Tax (GST)

Land transactions will be zero rated for GST purposes if both the vendor and purchaser are registered for GST and the land is to be used in a taxable activity. Schedule 2 form in the agreement must be completed. There may be GST exempt items in the agreement e.g. houses.

Development Expenditure

The vendor should provide details of development expenditure and their book value in the agreement. The purchaser can then continue to amortise these items.

Depreciation

Any assets that the vendor sells for more than their book value may result in depreciation recovery income which may be taxable e.g. cowshed and farm buildings. Specifying the value of these assets in the agreement may help to mitigate the consequences of depreciation recovered.

Related party transactions

Proposed tax changes should make it unlikely that a related party capital gain (currently taxable income) will arise. However, care needs to be taken if the sale is between associated companies i.e. under a succession plan. If there is a transfer of livestock between associated parties, the purchaser will be required to value the livestock on the same basis as the vendor (unless you qualify for an exemption for intergenerational transfers).

Fonterra Shares

Fonterra shares are often not included in the agreement. The vendor should consider if they wish to sell these, hold them or transfer the shares to Fonterra units. Your Fonterra representative or a share broker can advise on the options. Usually any gain or loss on Fonterra shares has no tax implications.

Grass Cover, Livestock

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. Both parties should ensure in-calf guarantees have been attained.

Farming model

Review how the production has been generated to determine the level of supplementary feed that is required, including what can be grown on farm vs. purchased.

Environmental considerations

Consider the level of compliance with current and future environmental regulations. For more information contact CooperAitken Ltd in Matamata, Morrinsville or Thames.

Anna Bennett, Director CooperAitken.