FFF Insight 12.1 - Could Death Trigger Capital Gains Tax on Your Family Farm?

What Every Farming Family Needs to Know About Australia's New Tax Reforms 

Imagine receiving a substantial capital gains tax bill after the death of a parent—even though the family farm has never been sold. 

It sounds difficult to believe. 

However, leading tax bodies, including CPA Australia and The Tax Institute, have raised concerns that this may be an unintended consequence of Australia's recently enacted capital gains tax reforms. 

The Federal Government has acknowledged the issue and indicated it is reviewing the legislation. 

If the legislation remains unchanged, the implications for farming families, family businesses and long-term asset owners could be significant. 

Why does this matter? 

For many years, Australians have generally understood that death itself was not a capital gains tax event. 

Instead, assets could pass to the next generation, with any capital gains tax generally deferred until the asset was eventually sold. 

Under the new legislation, capital gains accrued up to 30 June 2027 are effectively frozen and deferred until a future realisation event. 

According to concerns raised by tax professionals, those realisation events may now include: 

• Death  

• Divorce  

• Certain gifts and transfers  

If that interpretation is correct, families could face a capital gains tax liability despite not selling the asset and receiving no cash to pay the tax. 

For farming families, this could create significant financial pressure at exactly the time they are dealing with the loss of a loved one. 

A practical example 

Bill purchased his family farm before 20 September 1985. 

On 30 June 2027, the farm is independently valued at $18 million. 

Bill dies in 2031. 

The farm is now worth $21 million. 

His children continue operating the farm exactly as before. 

They do not sell any land. 

They do not subdivide the property. 

They simply continue farming. 

Under the previous rules, Bill's death would generally not have triggered an immediate capital gains tax liability. The farm could continue operating, with any capital gains tax generally deferred until a future sale. 

However, if the new legislation operates as tax experts currently believe, the $3 million increase in value since 30 June 2027 could become taxable on Bill's death—even though the farm remains in family ownership and no sale has taken place. 

The family could therefore face a substantial tax liability without receiving any sale proceeds to fund the payment. 

The forgotten issue — Pre-1985 assets 

Perhaps the biggest concern for many farming families is the treatment of pre-20 September 1985 (pre-CGT) assets. 

Many Australian farms have been owned by the same family for generations. Historically, these assets have benefited from special capital gains tax treatment. 

From 1 July 2027, those assets effectively enter the new capital gains tax regime, with future increases in value potentially becoming taxable. 

For many farming families, this represents one of the most significant tax changes in decades. 

Why succession planning matters more than ever 

Whether the legislation is amended or not, one thing is becoming increasingly clear. 

Australia's tax landscape is changing rapidly. 

Business structures, ownership arrangements, estate planning and succession planning have never been more important. 

The greatest risk may not simply be paying more tax. 

The greatest risk is having to sell part of the family farm simply to pay the tax. 

Families that understand these changes early will have more options, greater flexibility and more opportunities to preserve what generations have worked hard to build. 

Those who delay may find important planning opportunities have already passed. 

As we often say: 

The difference between a tax cost and a tax asset is planning. 

Become Succession Ready™. 

What should your family do now? 

The legislation may still change. 

However, waiting until the rules are finalised may mean valuable planning opportunities have already passed. 

Now is the time to understand your family's ownership structures, review your succession plan and identify opportunities before important decisions are forced upon you. 

Preserve. Protect. Prosper.