Going concern concession and GST free supplies of farmland
The sale of farmland as well as the sale of business premises as a going concern will constitute GST-free supplies (i.e. a seller will not charge GST on the sale) if:
- for the sale of farmland – a farming business has been carried on for at least 5 years before the sale and the buyer intends that a farming business will be conducted on the land; and
- for the sale of a going concern – the buyer and seller must agree in writing that the sale is of a going concern, the seller and the buyer are registered or required to be registered for GST, the supply is for consideration and the seller is supplying a going concern (i.e. an enterprise is carried on up to the date of sale).
Because no GST is charged on such a GST-free sale, a purchaser’s cash flow is improved (because there is no need to pay an extra 10% of GST) and such a sale may also lead to a reduction in stamp duty payable (because stamp duty is calculated on the GST inclusive sale price).
However, if the going concern conditions for a GST-free sale are not met, the seller will then have to pay GST on the supply. In some contracts, the seller will have a right to recover the GST from the buyer.
If you are interested in selling farmland or a business as a going concern, please speak to your Nexia adviser so that we can determine whether such a sale may qualify as a GST-free sale. We can also advise you which documents to maintain to have adequate evidence that an enterprise is in fact being carried on up to the date of sale (i.e. the settlement date).
Some further tips for property investors
In a previous top tax tips we mentioned that some landlords are mistakenly claiming a tax deduction twice for the same rental deduction. In this top tax tips we will provide taxpayers with some additional pointers that will help such rental property owners avoid common tax mistakes:
- Because tax on the capital gains may be payable when a landlord sells a property, accurate records should be kept over the ownership period and 5 years after selling the property – those records should comprise copies of the original purchase and sale contracts, details of improvements to the property, legal, real estate and valuers’ costs and other holding costs;
- To claim a tax deduction for rental expenses, the landlord should ensure the property is genuinely available for rent;
- Tax deductions are allowed for ongoing repair costs to the rental property that were incurred while the property was rented out in the year these expenses were incurred. However, initial repairs for damage that existed when the property was purchased (i.e. before being rented out) are not immediately deductible (and may rather be included in the cost base of the property to be depreciated at 2.5% per year for 40 years);
- Improvements (e.g. replacing a tin roof with a tile roof) to rental properties are not immediately deductible – such building costs can be claimed at a rate of 2.5% per year for 40 years from the date of completion; and
- Borrowing expenses (e.g. loan establishment fees, title search fees and costs of preparing and filing mortgage documents) that are $100 or less can be claimed in full in the year these expenses were incurred. If the borrowing expenses are greater than $100, they are tax deductible over the term of the loan or over five years whichever is the lesser period.