It depends. It is always important to review the requirements of the Duties Act in each case before assuming that a rural land transfer will be stamp duty free.
Mum and dad have owned a rural property since the 1970s. The farming business is carried on by a proprietary limited company. The shareholders and directors are mum and dad.
As the son and daughter-in-law now run and guide the farming business, mum and dad have decided to transfer part of the farming land to them valued at about $1.5 million. Mum and dad also propose to make the son and daughter-in-law directors of the farming operations company.
As the land was acquired prior to the introduction of Capital Gains Tax, there is no pre-CGT taxation on the transfer of the land.
Will the land however attract stamp duty of about $68,000.00 or will it be stamp duty free under the intergenerational transfer provisions contained in the Duties Act?
In order to obtain the benefit of the exemption, the primary production business must be carried on by the son and daughter-in-law and be continued to be carried on by them or a member of their family.
While the word “member” in relation to the family of the transferee (the son and daughter-in-law) is defined broadly and goes both up and down the family tree, it does not include family owned or controlled entities such as companies and trusts.
Since neither the son nor daughter-in-law will be carrying on the business and as the trading company is not a member of their family, the exemption will not be available. $68,000.00 stamp duty would be incurred if the transaction proceeds.
It is always important to review closely the requirements of the Act in each particular circumstance before proceeding with a family farm transaction.
At Everingham Solomons we have the experience to assist you with all your property needs because Helping You is Our Business.
Mr Farmer died in 1988 leaving the farm to his wife during her life time and then to his son after her death. The son has worked on the family farm since childhood and is now in his late forties.
As the son does not own the family farm, he has had difficulties negotiating funding with his bank because of his mother’s life interest.
His mother agrees to surrender her life interest in the family farm during her lifetime, to enable the legal estate in the family farm to be passed to her son.
Stamp duty on the transfer of mum’s interest to the son is exempt under the inter-generational stamp duty exemption for primary production land.
The family farm is transferred to the son and the family is happy.
Are there any tax consequences of the release of the life estate?
Unfortunately, yes.
The mother’s surrender of her life interest constitutes a capital gains tax event and a market value is attributed to the mother’s surrender of her life interest. That gain must then be included in the mother’s taxable income for that tax year.
As the son has paid nothing for the land, the mother will need to find the money to pay the capital gains tax on the deemed gain on the disposal of her life interest.
The family particularly mum, are no longer happy.
Unfortunately, in this situation, it may have been better for the son to wait until the mother’s death so that the ATO would disregard any capital gain on the death of a life tenant.
Transfer of farming assets between family members is complex and professional advice should be sought.
At Everingham Solomons we have the expertise to assist you because Helping You is Our Business.
It depends. It is always important to review the requirements of the Duties Act in each case before assuming that a rural land transfer will be stamp duty free.
