What to consider when selling a rural property - February Newsletter 2023

Welcome to our first newsletter where we answer the question: What do I need to consider when selling a rural property?

The comments we will cover are:

• What are your reasons for selling?
• Four essential questions Richard asks every seller
• What are the tax considerations when selling?
• What are the two traditional ways a rural property can be structured for sale?
• What are the six legal issues you need to consider?

Over the years I’ve spoken to many rural property sellers and buyers, answering questions and discussing options that align with their desired outcome. These discussions include helping identify the type of buyer, marketing/selling options and the pros and cons of each sale option.

In our first newsletter, I share my thoughts on my experience selling rural property and we talk to Becker & Co Chartered Accountants (QLD), Director, Sarah Becker, and Swanwick Murray Roche Lawyers (SMR Lawyers) Director, Robert Rooney, about ways you can structure your rural property sale to maximise nett profit.

In our coming newsletters, we’ll talk to professionals on the internal and external factors impacting rural landholder sales across a range of subjects.

We’re always looking for the best way to maximise the amount of money in your pocket. Often our clients say, ‘Richard, I’d never thought of that’, or ‘Richard, how did you know that?’ We hear it so often that we’re creating a bank of information on topics relevant to rural property owners. We hope that by bringing to light some of these issues and potential key impacts on your sale decision, we can make your rural property sale or purchase less stressful and more profitable.

What are your reasons for selling?

When you’re selling a rural property, Ray White Rural Rockhampton Director, Richard Brosnan, says the first thing you need to know is What is your desired outcome from selling the property?

“You need to determine what property and assets are included in the sale, and what kind of price structure we’re looking at.

“Are you retiring, expanding, trading or some other reason? That will drive how you offer your property for sale, either land and assets, land and partial assets, or just property as part of the purchase price,” he says.

"If you come to me and say ‘Richard, I want to sell my property’, what I’ll ask is ‘What outcome are you looking for?’, then we’ll drill down further.”

Four essential questions Richard asks every seller

1. Are you retiring and moving or expanding?
2. Do you need to take anything from the property (apart from personal belongings)?
3. What are your intentions with the livestock, machinery and other items on the property?
4. How attractive is the offer of your property to a buyer? Will it encourage them to maximise their offer or bid on the day?

What are the tax considerations when selling?

The second thing you need to do before taking your property to the market is to speak to your accountant to understand any taxation implications.

Becker & Co, Chartered Accountants’ (QLD) Director Sarah Becker, says with the value of rural assets today, this is not a decision to make on the fly.

“A strategy must be formed, working with your taxation, legal and property advisors. Your advisory team must work together to ensure the maximum benefit is realised from the strategy set. You only get to sell an asset once!

“The most common ‘tax’ people consider is Capital Gains Tax (CGT). A capital gains event is triggered when a contract is signed for the sale of an asset, not at settlement. Goods and Services Tax (GST) and income tax are also items to consider,” Sarah says.

“The starting question, which is important to answer, is What are you selling?, and therefore, What are the items that need to be worked through? Is it the land only, or are stock and plant included too? Having a clear understanding of this allows your taxation advisor to step you through the different taxes and their implications.”

Sarah points out, that as raised above, signing a contract triggers a CGT event. The timing of this will determine the relevant financial year for your potential associated liability.

“Rural sellers should be asking their accountant to step them through the CGT General Rebate and Small Business CGT concessions.

“Understanding how these apply to your situation and whether you are eligible to access the concessions should form a large part of the overall strategy and planning,” she says.

Sarah notes that GST is another tax that many don’t consider until after signing a contract.

“This can have a negative impact for both the seller and buyer. Again, by working with your accountant from the outset, you will avoid any unnecessary surprises,” she says.

The third part to a rural property sale is touching base with your solicitor.

SMR Lawyers Principal, Robert Rooney says planning for a sale is the most important yet often the most overlooked aspect of selling.

“Obtaining good advice from lawyers, accountants and real estate agents is a solid starting point.

“Understanding the legal and financial implications of your sale plan from your solicitor and accountant is key, but getting a realistic view of the rural market, particularly in relation to your property, is crucial in ensuring your plans are realistic,” Robert says.

“For those who don’t engage in the planning process, it is not surprising to hear of horror stories that could have been avoided by seeking advice from a decent realtor, lawyer and accountant before going to market.”

Robert says that once you’ve had conversations with your advisors, there are two main ways you can structure the sale of your rural property and its assets.

What are the two traditional ways a rural property can be structured for sale?

1. Walk in Walk Out (WIWO)

“If the strategy is to sell everything; the land, plant and stock/crops in one bundle, this is what is known as a walk in, walk out sale. Having spoken with your accountant, the GST implications should have been correctly considered and addressed,” Sarah says.

Robert points out, that some disputes come up in this area, particularly around the condition of the plant and equipment. “For variable items, like stock or hay bales, for example, there can be disputes around the quantity transferred at settlement, so it’s important to get the wording in your contract right. Make sure the contract expresses exactly what is for sale, and make sure you are comfortable with the wording. This is particularly important for higher value plant and equipment. The value of a $80 bale of hay can quickly add up when you are disputing 500 ‘lost’ haybales at your inspection on settlement day.”

The second way you can structure your rural property for sale is bare.

2. Bare

When you offer a rural property bare, you are selling the land and the buildings only, no other assets.

Sarah says being clear from the outset as to what you are trying to achieve with the sale is crucial. “Knowing and understanding the taxation implications by selling this way will help you make the right decision.”

According to Robert, it is important to allow some flexibility in your sale contract conditions to allow you to either vacate after settlement or to extend settlement to allow for external factors outside your control such as rain.

What are the six legal issues you need to consider?

There are many things to be mindful of when selling a property, which depend on your goals of selling and the property itself. Robert offers the top six issues to consider:

1. “Many rural properties are owned as long-term leases from the State. From a seller’s perspective in Central Queensland, this doesn’t usually seem to pose much of an issue or impact the price. Make it a priority to review the terms of the lease to ensure there is nothing prohibitive that would scare a buyer and check the expiry date of the lease, and if necessary, the process of extending the lease,” Robert says.
2. “Check for associated rights or encumbrances on the title. For properties held on a long-term basis, we will sometimes see handshake deals struck between parties giving them rights over the property. This might be for mining rights, access, pipelines or other rights. Such a right will usually exist as a contractual relationship between the rights holder and the seller. It doesn’t usually pass to the buyer unless they agree (usually under the sale contract terms). If the seller doesn’t tell the lawyer about it and it’s not resolved, the rights holder might be able to sue the seller after settlement, which is not ideal.”
3. Robert notes that checking the terms of a road licence, permit or other terms of any area used to operate the property can be very important, as there can be implications for access to the property. “Some government permits or licences say that they cannot be assigned to a buyer. This might mean that a fresh application needs to be made to the government if the buyer is to take the area over. Depending on how critical this area is to the property, this might have an impact on whether the property is auctioned or not.
4. “With tree clearing penalties at their highest, and the government talking about further restrictions, it is important to discuss with your lawyer whether any unauthorised clearing has occurred on the land. Buyers can sometimes have the right to sue the seller if the government penalises them, the buyer, for any tree clearing carried out by the seller. Understanding this issue and preparing for it can assist.
5. “Water security for buyers is usually a significant issue,” Robert states. “Ensure all water sources on the property are legally secure, in some cases, water agreements with neighbours are unwritten and this will detract buyers, resulting in a lower sale price. Ensuring all water agreements are properly documented and assignable to buyers is crucial.”
6. “Planning your exit from the property is important, as it will affect how your contract is prepared. For example, if you decide to sell the property with vacant possession you need to plan for how long it will take to exit the property. Will you need to muster the cattle? If so, account for weather disruption, arranging trucks to remove gear, clearing sales and so on. These things all take time. Planning for a longer settlement or incorporating provisions about continued possession after settlement might need to be brought to the table. On the other hand, selling plant, equipment and stock with the property is another common exit strategy. Whichever option you choose, it is crucial to agree on exactly what remains and what you are taking with you, and being clear about the condition of the items you leave behind.

“All of these issues are likely to be a concern to a buyer, so it’s a good idea to resolve them prior to putting the property on the market to prevent losing potential buyers, or having the settlement significantly delayed,” Robert says.

The wrap up

No matter which way you choose to present your property for sale there are many aspects to consider.

Ray White Rural Rockhampton Director, Richard Brosnan says setting up your rural property sale in the most financially effective way that suits your goals and is attractive to buyers is important. It can set you up for a smooth and comfortable transition to your new future.

“Take the time to think about why you’re selling the property and to work through what you would like to get out of the sale, financially and emotionally. Selling your rural property is a big step, and you want to make sure you have the right people around you when you take that step,” Richard says.

“Work with your professional partners, people like me, your rural real estate agent, your solicitor, and your accountant. It’s important your professionals work as a team to deliver the best outcome for you when you’re selling your life’s legacy.”

If you are considering selling your property and would like to discuss your options call Ray White Rural Rockhampton Director, Richard Brosnan, for a confidential chat or appointment on 07 4922 5211 or 0400 361 114