Family Farm Transfer Exemption – Transferring the Family Farm to related Parties

Farmland is often the single most valuable asset for a farming family. The farm provides a base from which to operate the farming business and the capital value of the farmland typically increases in value over the long term. 

In circumstances where there are multiple generations of a family working on the farm, the family might decide to transfer the farmland from one family member to another. This is a significant event as it represents the generational handover of the family farming business. From succession planning and future business growth issues, to broader asset protection and structuring reasons, there are several benefits, both legal and emotional, of keeping control of the farmland in the family.

Despite the emotion that is inevitably present with transferring control of the farm to or for the benefit of a relative, it is vitality important that the family obtains the appropriate legal advice in relation to property law, state tax and federal tax issues before actioning any transfer.

Ordinarily, when real property is transferred from one party to another, the party receiving the property would pay land transfer (stamp) duty on receipt of the property, unless an exemption or concession applies. Stamp duty is calculated on the price paid, or the market value of the property, whichever is greater.

Stamp Duty

In Victoria, a full exemption to stamp duty is available on transfers of farmland between family members. Section 56 of the Duties Act 2000 (Act) sets out the following conditions to obtain the family farm exemption:

• The farmland must be exempt from land tax under the ‘primary production’ land tax exemption. Primary production means the land is used for:

  • cultivation for the purpose of selling the produce of cultivation; or

  • the maintenance of animals or poultry for the purpose of selling them; or

  • the keeping of bees for the purpose of selling their honey; or

  • commercial fishing; or

  • the cultivation or propagation for sale of plants, seedlings, mushrooms or orchids.  

• The transfer must be between ‘relatives’. A relative includes a child, grandchild, parent, brother, sister, uncle, aunty and any partner of these.

The transferor and transferee can be a company or trust, but there are prescriptive requirements that the State Revenue Office (SRO) will closely assess when either of these structures are included.

By utilising an appropriately drafted farmland trust, a family may be able to achieve a business transition, succession planning, and/or asset protection without the imposition of duty.

Example

A typical example of when a company or trust is involved: Bob wishes to transfer his farm to his son, Joe. Joe has been working on the farm since he was a young boy and Bob always intended on passing control of the farm to Joe. Joe has obtained legal advice and to limit the risk exposure of the farmland to his business enterprise, Joe has decided that the transferee will be his company, Joe Holdings Pty Ltd as trustee for J Farm Trust. The J Farm Trust has been drafted so that the capital of the trust (the farmland) cannot be distributed to any person other than a relative of Bob. This maintains the family connection with the ultimate landholder, being Bob. In these circumstances, it is highly likely that the SRO will issue a full exemption to stamp duty.

It is important that parties are aware of their obligations and evidentiary requirements when applying for the family farm exemption through the SRO. In the example for Joe, we would have to provide copies of the trust deed for J Farm Trust and explain to the SRO that the capital of the trust can only be distributed to Bob’s lineal descendants.

Tax

In addition to duty considerations, transferring the farm will trigger a Capital Gains Tax (CGT) event. Accordingly, if the land is a post-CGT asset, consideration needs to be given to whether any CGT concessions and exemptions may be available to the transfer. Eligibility needs to be assessed on a case-by-case basis.  

Final Point

Transferring the family farm has its legal and emotional issues and without the appropriate advice these issues can have a significant impact on the family unit and success of the farming business. If you require assistance or wish to obtain further information in relation to the succession plan of the family farm, please contact:

Alasdair Woodford
Principal Lawyer
T: 03 5225 5217| M: 0436 456 144
E: awoodford@ha.legal

Joseph Flanagan
Associate
T: 03 5226 8504
E: jflanagan@ha.legal

Ben Smith
Graduate Lawyer
T: 03 5225 5262
E: bsmith@ha.legal