Most Queensland farming properties have experienced some extreme weather or natural disasters in recent times. Of course, no one can completely plan for these events.

What happens if you are forced to sell your livestock for any reason, ahead of time? Here are a few ways to manage this well.

How the income is taxed

The most common occurrences of forced sales are because:

• You must sell or destroy livestock because your land is compulsorily acquired or resumed under an Act
• Your pasture or fodder is destroyed by fire, drought or flood
• Your livestock are compulsorily destroyed under an Australian law for the control of a disease

Your taxable income in the year of the sale is reduced by the amount of the profit on those sales. This is calculated as the proceeds of the sale or if destroyed, or the compensation received, less either the cost of the livestock if they were purchased during that year or the average cost as per your trading stock schedule at the start of the year.

The Tax Act has several concessions which allow you to defer the tax when these events happen.

Managing the income from forced sales

The tax rate per dollar increases as your taxable income increases, so you save tax if you are able to spread the income over several years rather than having it taxed in the year of the sales.

You can elect to return this profit as income in two ways:

1. You can elect to spread the profit in equal instalments over a five-year period that includes the year of the enforced sale. These amounts are fixed and cannot be varied.
2. You can offset the deferred profit against the cost of any replacement livestock or be included as income to offset against the cost of breeding your replacement livestock.

This option is more flexible and can be actioned any time in the upcoming five years. Any remaining deferred profit must be included as income in the fifth year after the deferral.

These deferred profits must be taken into consideration each year at tax planning time to ensure they are managed. Certain events like death, bankruptcy, permanently leaving Australia or ceasing to be a primary producer, will force the deferred profits to be income in the year that event occurs.

Making the best of it

Making the best of your finances is what we’re focused on at Kennas. It’s important to tick all the boxes though. If you need advice or tax management, speak with your advisor, or make a time to talk with Helen Warnock, one of our Agribusiness specialists and a Partner here at Kennas.

This article offers general information only. You should consult your personal advisor to seek advice relevant to your personal circumstances before taking action.