Who has a primary residence they use as a hobby farm (tax deductions)

Hi everyone.

We are looking at buying a large property in northern Vic. The plan is for acreage that will include our primary residence and we will raise some livestock there. The plan will be to run this as a small farm. Not aiming for any substantial profits but just making the most of the land that we will have.

No I am planning on getting tax advise obviously but I wanted to hear from those with similar set ups and what tax concessions benefits that you were able to take advantage of (my income makes this attractive) Such as can you claim losses from the 'Business' against income? Could this stretch to mortgage payments or other expenses. As I said I will be seeking tax advice but was keen to hear on others overall experiences with this kind of move.

Thanks

 

I suppose it depends if run as a business or a hobby - how much do you anticipate making each year from the farm as income?

 

One option...

A deed of partition so you own the main residence. Farm land is owned by your smsf that rents the farm to the farming business.

I have another 32 options...

 

I know of someone who's SMSF owns the land that is used for agistment of a variety of horses (10-13) the house on the property that is used for agistment is not included though

 

A Hobby farm may not satisfy the real business property requirements.

Personal tax advice is needed. eg CGT main residence exemption covers 2HA max. Non-commercial loss information, state land tax PP concessions etc.

 

It wouldn't be a lot of income and as I said it wasn't thea reason for doing it but I read that you can offset the losses against your income if total income is less than 250k pa so I was thinking that if you could satisfy the real business requirements which I feel that we may be able to, that you might be able to claim depreciation on machines, utility vehicle etc?

 

There is an ATO ruling about this, worth a read:

https://www.ato.gov.au/law/view/document?DocID=TXR/TR9711/NAT/ATO/00001#P12

In a nutshell it says that there has to be evidence that there is a '''significant commercial character" to what you are doing. I think if you are talking about making a couple of grand each year selling a flock of sheep and then claiming deductions for your mortgage/utilities/fences/quad-bikes etc you would be on shaky ground.

If you have a business plan, registered ABN, making regular capital investments, turning over significant amounts per year etc then it would look a lot more like a real business.

 

Thank you for the replies. I willam obviously have to do more research but it looks like there is some potential there at the very least. Thank you for the replies so far, I really apprecsite the insight.

 

An ABN is not an essential character for a business. A small business may or may not have a ABN eg a winery or olive grower just planting vines / trees. Worth also looking at the Vic land tax rules for primary production. And the non-commercial loss tests.

The important element that the ATO mention is :
You are not operating a business if the activity is better described as a hobby, a form of recreation or a sporting activity.
You used the word hobby farm...

If you plan to offset PP losses v's ordinary earnings its worth seeking a private ruling. You would be arguing that your lifestyle is being funded by the PP income but then have non-PP income which assists to fund the lifestyle which is contradictory.

 

@Paul@PFI

They mentioned the below for their case

Appendix 2, Paragraph 230

https://www.ato.gov.au/law/view/document?docid=SFR/SMSFR20091/NAT/ATO/00001

 

I know someone that had a smaller acerage owned by his SMSF, he ran some livestock and lived on site (for free/claiming all costs) as a "caretaker"
*So he claimed, not sure of the validity or IF the ATO actually accepted this

 

There is a specific smsf exemption which allows a commercial farming operation to include a home occupied by members or associates. It is quite complex and in cases I have seen where it could be available it was dangerous and a risk to do so over a longer term period. Otherwise no smsf residential property may be occupied or used by a member, associate or relative even under market terms. The penalty is as much as significant tax at 45% x the value of the fund or compulsory sale in some cases.

I would be seeking specialist smsf legal advice from DBA Lawyers

 

I read this today, and thought of this thread

SMSF Loans Rural Property: Buying a Farm with Your Super Fund

Not sure how it can pass the sole purpose test if there's no income coming in other than member contributions though

 

Running a genuine business (not agistment) could also open you up to the small business CGT concessions (as Paul mentioned, the full property does not get the PPOR exemption).

 

@Paul@PAS
@Terry_w
@Ross Forrester


Interesting to look at this from info provided

SMSF to buy the farm

SMSF and the rural life

SMSF Farm

Tree Change - SMSF

AFI Article

 

Yes it is possible for a member or related party to live on a SMSF owned farm in some circumstances.

 

How about a SMSF owned shop which has attached residential premises ?

 

not sure how that could be possible.

 

Would a worm farm qualify?

Agisting worms for the neighbours, collecting vege waste, selling the worm castings and liquid?

 

On a farm the house does not have much value many houses are left to just fall down or bulldozed more often than not , there is little capital gain compared to the massive gains on the land. Capital gains on PPoR are insignificant , Some of the houses were sold for a few K and moved into a ****** little town and still had little capital gain.I bought a farm shared farmed it first then leased it. Though Paul said I could NOT omitt 10 Ha from the agreement I did . I used house for PPoR,1 HA for a feed lot , sheds and silos to store grain and machinery used in my contracting buisiness I have been told I can get CGT discount and active asset reduction. Even if I cant there is no capital gain in the worthless PPoR anyway.