Succession planning is often the elephant in the room for families whose livelihoods are tied up in primary production businesses.
Dealings which involve the 'family property and money' can create anxiety and worry, especially where there is a working history involved with one or more of the family members. Transactional costs and taxes only add to the tension, but a law passed last year did provide some relief.
The Queensland Parliament made changes to the Duties Act 2001, which means that a broader range of transfers of primary production businesses, such as farms and cattle properties, between people in the same family, can now be duty free.
Under the old law, transfers of primary production businesses between family members were only duty free if the transfer was by way of a gift. This meant that if a business was to be transferred between family members and consideration (such as money, or the assumption of debt) was given for the transfer, duty was to be payable.
Essentially, the amendments now allow for the transfer of a primary production business between family members to be duty free, even if consideration is given, provided the following conditions are satisfied:
- The seller is a defined relative or ancestor of the transferee. “Defined relatives” can include, parents, spouses, aunts and uncles, siblings and children.
- The buyer doesn’t acquire the business property as trustee (other than as trustee of some certain types of family trusts).
- The business is carried on by the defined relative, alone or with others.
- Following the transfer, the business is intended to continue to be carried on by the buyer.
Also, if under the transfer of a primary production business residential land adjacent to land used to carry on the business is to be transferred, the transfer of the residential land is also duty free. After a further ruling in December 2016, the exemption now extends to items like water entitlements included with the transfer.
What this means for you?
The changes affect those operating primary production businesses, such as farms or cattle properties, who wish to transfer the business to a relative, who is currently working in the business and intends to continue to run it. The transfer will not be required to be done by way of gift to be duty free, instead a cash payment or other value can be given for the transfer.
If you’re in a primary production business it’s important to start making plans for your business succession early, and we recommend you contact your advisors to discuss this important topic at your earliest convenience.