A significant part of any farm succession plan is planning for retirement.
Given ever-increasing farm, living and education cost, most farming enterprises will only support one child and their family of the succeeding generation.
Retirement planning for the parents will sometimes include the goal of qualifying for at least a part aged pension.
In most cases, the assets test is the biggest hurdle to overcome and invariably any would be pensioner will need to transfer land.
Asset deprivation (gifting) rules are likely to preclude pension eligibility for a period up to five years. This waiting period may in some cases be reduced by using either or both of the foregone wages or granny flat concessions.
Without government exemptions, the burden of stamp duty would make the cost of intergenerational transfers, prohibitive.
For example, the stamp duty on a $1m property is approximately $55,000.
The family farm stamp duty exemption was introduced to “assist younger family members to take up ownership of family farms and, as a consequence, to encourage the use of more efficient and innovative farming methods”.
The existing stamp duty exemption applies provided all three of the following conditions are met:
- The land must be used for primary production in accordance with the legislation
- The transfer must not be part of a scheme devised for the principal purpose of taking advantage of the stamp duty exemption,
- Transfers must occur between related persons who include, spouse and spouse, parent to child and their spouse, grandparent to grandchild and their spouse, sibling to sibling and their spouse, and uncle/aunt to nephew/niece.
The legislation also provides a stamp duty exemption on the transfer of farmland to a family trust so long as the trust deed contains certain restrictions. In other words, the use of the common form of discretionary trust to convey a family farm would not qualify for the stamp duty exemption. This is because a transfer to a trust that includes a beneficiary not contemplated by the legislation will make the transfer liable to duty.
The transfer of trust assets to trust beneficiaries has always been subject to nominal stamp duty in Victoria. The exemption also applies to farm transfers from a family-owned company to a natural person who is a relative of a shareholder of the company, where all shareholders are natural persons.
This is of particular benefit to farmers who wish to transfer farming land out of farming companies into their individual names and then voluntarily liquidate the company. There are still many farms owned by companies set up over 40 years ago and in some cases up to 80 years ago.
Whilst the implications of the capital gains tax laws should be carefully considered, the Victorian family farm stamp duty exemption is very helpful in assisting farm succession and providing financial security in retirement.
Important: This is not advice. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur rapidly. We, therefore, recommend that our formal advice is sought before acting.