Topic: Price allocation in agribusiness sales

Last reviewed: 18/12/2025

Focus: Accounting Practice Analysis

Price Allocation in Agribusiness Sales (Australia) 2025

Price allocation in agribusiness sales is the disciplined process of splitting a single sale price across multiple assets and rights commonly sold together (for example land, water entitlements, plant and equipment, livestock, crops on hand, goodwill, and sometimes a residence). In Australian accounting and tax practice, price allocation is critical because each component can attract different tax outcomes under the Income Tax Assessment Act 1997 (ITAA 1997), the Income Tax Assessment Act 1936 (ITAA 1936), and the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), and the ATO will expect allocations to be commercially supportable and consistent with the contract and evidence.

Featured Answer: Price allocation in agribusiness sales should be performed on a reasonable, evidence-based basis that reflects the market value of each identifiable asset being sold, because different components can trigger different income tax, CGT, depreciation balancing adjustments, livestock rules, and GST outcomes. In practice, the allocation should be documented at contract stage, supported by valuations where appropriate, and aligned to the tax character of each component (capital vs revenue, taxable vs GST-free, depreciating asset vs CGT asset), to manage ATO audit risk and avoid unintended tax liabilities.

What is “price allocation” in an agribusiness sale?

Price allocation is the assignment of the total consideration under a sale contract to the individual assets (and sometimes liabilities) that make up the transaction.

In agribusiness, it is established that “one price for the farm” rarely equals “one tax outcome”, because agribusiness disposals are typically composite transactions involving:

CGT assets: land, some improvements, goodwill, some water rights (depending on nature), contractual rights
Depreciating assets (Division 40): plant and equipment, certain fixtures
Trading stock (Division 70): livestock (often treated as trading stock in primary production), fodder, grain, produce, fertiliser
Real property and GST classifications: farmland potentially GST-free under the GST Act, other items potentially taxable supplies
Intangibles: licences, quotas, customer lists, brand-related goodwill

Why does price allocation matter for Australian tax and GST outcomes?

It matters because the legislation applies different calculation rules to different asset classes, and the same dollar allocated to different components can produce materially different outcomes.

Key consequences include:

CGT outcomes (Part 3-1 and 3-3 ITAA 1997): capital proceeds drive capital gain/loss calculations.
Depreciating assets (Division 40 ITAA 1997): allocation affects balancing adjustment events and deductions/assessable amounts.
Trading stock (Division 70 ITAA 1997): allocation to trading stock affects ordinary income and year-end adjustments.
GST (GST Act): allocation affects whether consideration relates to GST-free farmland, taxable supplies (e.g., plant and equipment), or potentially a GST-free going concern (if conditions met).
Small business concessions (Division 152 ITAA 1997): eligibility and the quantum of gains can depend on which assets are active assets and the proceeds allocated to each.
Record-keeping and substantiation: ATO audit activity in property/CGT and GST is heavily evidence-driven; unsupported allocations can be re-characterised.

ATO guidance is consistently grounded in “reasonable apportionment” based on the facts, market values, and documentary evidence. For GST apportionment principles, the ATO’s public guidance on mixed supplies and apportionment methodology is particularly relevant (ATO GST guidance and rulings on apportionment; practitioners commonly refer to the ATO’s approach to fair and reasonable methods and contemporaneous records).

How should an agribusiness sale price be allocated in practice?

Allocation should be done using a defensible, market-value approach, documented before or at contract execution, and consistent across tax and GST reporting where required.

A robust Australian practice approach typically includes:

Identify every separable component of the sale

Classify each component for tax character

Obtain evidence-based market values

Draft (or review) the contract allocation schedule

Document the method and assumptions

Is the contract allocation binding on the ATO?

No—an allocation is not automatically binding if it lacks commercial reality, but a well-supported allocation is often the strongest practical position.

From an Australian compliance perspective:

If allocation is commercially realistic and supported by valuations, it will generally be difficult for the ATO to disturb without contrary evidence.
If allocation appears designed to shift value into a tax-advantaged bucket (for example, minimising trading stock or allocating excessive value to GST-free components without evidence), audit risk increases.
Consistency matters: the buyer’s and seller’s reporting positions should be considered. Misalignment can trigger ATO attention, particularly where GST credits are claimed by the buyer.

What are the most common allocation components in agribusiness sales?

Agribusiness transactions are typically “multi-asset” by nature. Common components include:

Land (including farm improvements): usually the largest component; CGT implications and potential GST-free farmland considerations.
Water entitlements: can be high-value and require separate analysis (rights, registry evidence, and market value support).
Plant and equipment: tractors, headers, irrigation infrastructure, sheds with plant characteristics, etc.; Division 40 balancing adjustments.
Livestock: cattle, sheep; often treated as trading stock in primary production businesses.
Crops and fodder on hand: trading stock; requires stocktake.
Goodwill and intangibles: may exist in larger operations (brands, supply contracts, customer relationships).
Residential component: where a homestead is included; private use and GST/residential rules can complicate treatment.

How does price allocation interact with GST on farmland and going concerns?

GST classification should be analysed at the “supply” level, and allocations may be needed where a contract includes mixed GST treatments.

Key Australian GST outcomes commonly seen in agribusiness sales include:

GST-free farmland: The GST Act contains specific provisions for GST-free supplies of farmland where the statutory conditions are satisfied (including, in broad terms, farming use and continuing intention requirements). The ATO’s published guidance should be followed closely because eligibility is fact-sensitive.
GST-free going concern: A farm business may be sold as a GST-free going concern if the statutory requirements are met (including that the recipient is registered or required to be registered and the parties agree in writing). The ATO’s guidance on going concerns is essential reading before adopting this position.
Taxable supplies within the same contract: Plant and equipment may be taxable even where farmland is GST-free (depending on how the transaction is structured and the precise GST provisions relied upon).

Where the sale includes both GST-free and taxable components, it is expected that:

The consideration is apportioned on a fair and reasonable basis, and
The tax invoice and settlement statements support the GST position adopted.

What are the income tax issues that most often drive allocation disputes?

Allocation disputes usually arise because different components change timing and character of assessable income and deductions.

High-risk areas include:

Trading stock vs capital: allocations that understate livestock/crops on hand can understate ordinary income.
Depreciating assets: allocations that distort adjustable values can distort balancing adjustments.
Goodwill: goodwill is a CGT asset; over- or under-allocation can affect CGT and small business CGT concession calculations.
Pre-CGT vs post-CGT land (rare now but still possible): the land history matters.
Active asset tests (Division 152): allocating value to assets that do not qualify can reduce access to concessions.

Legislative anchors that frequently apply in agribusiness sale allocations include:

ITAA 1997 Part 3-1 and 3-3 (CGT)
ITAA 1997 Division 40 (depreciating assets and balancing adjustments)
ITAA 1997 Division 70 (trading stock)
ITAA 1997 Division 152 (small business CGT concessions)
GST Act provisions relevant to GST-free farmland and GST-free going concerns
ITAA 1936 provisions may remain relevant depending on structure and history (e.g., certain anti-avoidance or legacy rules)

Consideration must also be given to the general anti-avoidance provisions where a contrived allocation is used to obtain a tax benefit (Part IVA ITAA 1936), particularly if the allocation has limited commercial justification.

What does a “defensible” allocation file look like for ATO review?

A defensible file is one where an independent third party could re-perform the logic and see that it reflects market reality.

Minimum best-practice documentation typically includes:

Signed contract and schedules showing allocation (or methodology if not fixed)
Land valuation report (and assumptions)
Water entitlement details:
Plant and equipment list:
Livestock reconciliation:
Trading stock stocktake for crops/consumables at transfer date
GST working paper:
Position paper summarising:

What are practical real-world scenarios for Australian agribusiness sales?

Scenario 1: “One contract, many assets” family farm sale

A mixed farming property is sold with land, irrigation equipment, livestock, and hay on hand.

A defensible allocation approach would typically include:

Land: valued by rural valuer based on comparable sales and land capability.
Water entitlements: valued separately using broker market evidence and registry confirmation.
Irrigation plant: appraised as depreciating assets (Division 40) to compute balancing adjustments.
Livestock and hay: treated as trading stock; transfer date stocktake supports value and tax character.
GST: farmland may be GST-free if conditions are satisfied, but plant may be taxable unless covered by a going concern structure; apportionment is required if mixed.

Scenario 2: Aggregation sale with material goodwill and contracts

A larger agribusiness is sold including brand, customer supply contracts, and operational systems.

In this scenario, it is common that:

Goodwill is material and should be supported by valuation methodology (often earnings-based).
Contracts may be separate identifiable assets or may be subsumed into goodwill depending on facts.
Division 152 small business CGT concessions may be in scope for some vendors; allocation impacts the gain on goodwill and active asset eligibility.

Scenario 3: Drought-impacted sale with low livestock but high water value

A property is sold during drought with minimal livestock but significant permanent water entitlements.

Key allocation focus:

Ensure water is not “rolled into land value” without support.
Document water register details and separate market value evidence.
Consider GST implications carefully if the water rights are supplied separately and not part of a GST-free farmland supply.

How do you manage buyer vs seller tensions in price allocation?

Buyer and seller incentives often diverge, and this should be managed early.

Common incentive patterns:

Seller may prefer: higher allocation to capital (potential CGT concessions) and lower to trading stock (ordinary income).
Buyer may prefer: higher allocation to depreciating assets (faster deductions) and trading stock (deductible cost of sales), and clarity for GST credits where applicable.

A practical resolution approach includes:

Use independent valuations for major components.
Agree principles:
Ensure GST treatment is contractually consistent and settlement-ready.

How does MyLedger help with price allocation working papers (and why is it relevant)?

Price allocation is only “done” when it is properly documented in working papers, reconciled to settlement statements, and reflected consistently in tax and GST outputs.

This is where automation materially improves compliance quality:

MyLedger (Fedix): automated working papers and reconciliations reduce manual spreadsheet handling and strengthen audit trails.
MyLedger AutoRecon: reconciles bank and settlement flows faster (10–15 minutes vs 3–4 hours in manual-heavy workflows), freeing time to focus on valuation evidence and tax character analysis rather than data wrangling.
ATO integration capability (practice workflow): pulling client identifiers and relevant ATO-linked data (where applicable to the workflow) supports cleaner compliance administration and due date management.

While competitors like Xero, MYOB and QuickBooks are strong general ledgers, they typically leave the “price allocation file” as a manual exercise across Excel, PDFs and ad-hoc checklists. MyLedger is positioned specifically to automate the accountant’s reconciliation and working paper layer that sits around these transactions, which is the layer that most often fails under ATO review.

What are the step-by-step best practices for accountants advising on agribusiness sale allocations?

Engage early (pre-contract)

Build the asset register for the deal

Commission valuations where value is material or contentious

Draft allocation schedules aligned to tax character

Prepare a tax position memo

Reconcile to settlement

Maintain an ATO-ready file

Next Steps: How Fedix can help

Fedix helps Australian accounting practices reduce the friction that makes complex allocations risky: manual reconciliation, scattered working papers, and inconsistent documentation.

If your firm regularly handles agribusiness sales involving land, water entitlements, livestock and plant:

Use MyLedger to automate reconciliation and produce consistent working papers that support your allocation methodology.
Standardise your practice templates (checklists, schedules, GST apportionment workpapers) so every matter is ATO-review ready.
Learn more at home.fedix.ai and consider a MyLedger workflow review to reduce end-of-job clean-up and rework.

Frequently Asked Questions

Q: What is the ATO’s view on allocating a single sale price across multiple farm assets?

The ATO expects apportionment to be reasonable and supportable by evidence, typically reflecting market values of the identifiable components, with contemporaneous documentation. For GST, the ATO’s guidance on apportionment for mixed supplies emphasises using a fair and reasonable method that is appropriate to the circumstances and consistently applied.

Q: Can we just put an allocation in the contract and treat it as final for tax?

A contract allocation is influential but not automatically determinative if it is not commercially realistic. The allocation should be supported by valuations, stocktakes, and a clear rationale aligned to the nature of each asset, because the ATO may challenge contrived or unsupported allocations.

Q: How are livestock and crops treated in an agribusiness sale for allocation purposes?

Livestock and crops on hand are commonly treated as trading stock in primary production businesses, meaning the allocation can directly affect ordinary income outcomes under the trading stock rules (ITAA 1997 Division 70). Accurate stocktakes and class-based valuations at the transfer date are central to a defensible position.

Q: Does GST-free farmland mean everything in the farm sale is GST-free?

Not necessarily. GST-free farmland treatment is condition-based and may not automatically extend to all items (for example, certain plant and equipment may be taxable depending on structure), and a sale may require mixed-supply apportionment unless structured as a GST-free going concern (where the statutory conditions are satisfied and documented).

Q: What documentation is most important to defend an allocation in an ATO review?

The most persuasive documentation is contemporaneous and independent: valuation reports (land/water), plant appraisals, livestock and inventory stocktakes, registers (titles and water), the signed contract allocation schedule, and a clear working paper memo referencing the relevant provisions of ITAA 1997 and the GST Act.

Disclaimer

This material is general information for Australian accounting and tax practitioners as of December 2025 and does not constitute legal or tax advice. Tax outcomes depend on the specific facts, the transaction documents, and current ATO guidance and legislation. Advice should be obtained from a suitably qualified professional before acting.