Stamp Duty Exemption and Transfer of the Family Farm

In 1999 the NSW State Government amended stamp duty legislation to provide that in certain circumstances intergenerational transfers are exempt from stamp duty.

Why the stamp duty exemption is important to farmers and their advisors?

The stamp duty exemption:

  • Will allow farmers to transfer all or part of their farmlands to the next generation free of stamp duty with the hope this will encourage younger people to become involved in farming.
  • Will encourage farmers to plan for their retirement. Too often in the past farmers have delayed transferring farmlands due to the stamp duty costs and have reached retirement age and found themselves asset rich, income poor.
  • Will allow farming families to restructure. For example, just prior to the abolition of death duties in 1981 many farmers’ advisors arranged for their farmlands to be owned by companies or family trusts. Since the abolition of death duties and the introduction of capital gains tax there are certain disadvantages of holding farmlands in a company or family trust.

Guidelines

Transfers are eligible subject to the meeting certain criteria, including:

  • The transfer must be executed on or after 14 September 1994.
  • The owner must be a natural person and if not, the person directing the transfer must be:
    • If the owner is a bare trust, a person who is a beneficiary of the trust;
    • If the owner is a discretionary trust, a beneficiary entitled to at least 25% of the capital of the trust;
    • If the owner is a unit trust, a beneficiary with at least 25% of the units in the trust
    • If the owner is a company, a shareholder of the trust:
      • who holds the shares beneficially (not in trust);
      • who is entitled to vote at meetings;
      • who is entitled to 25% of the assets of the company on winding up
      • A percentage lower then 25% can be satisfactory if it is considered just and reasonable by the Commissioner for Stamp Duties.
  • The transfer must be to a descendant of the owner or the person directing the transfer.  Descendants include brothers, sister, sons, daughters, nieces, nephews and spouses or de facto partners of any of these.
  • The property must be used for primary production by the owner or the trust or company in which the owner is involved, immediately prior to the transfer.
  • The property must continue to be used for primary production after the transfer.  A question arises as to whether an individual must be operating the farmlands personally rather than through a trust or company.
  • The guidelines do not apply for lands that are currently leased to someone who is not a descendant.  Therefore any leases would need to be terminated at a time prior to the transfer taking place.
  • The exemption extends to cover property that is integral to primary production such as water licences.
  • The transfer cannot be to a person who is acting a trustee.

If you are thinking of taking advantage of the intergenerational stamp duty exemption, consult your solicitor to ensure that you satisfy all the necessary criteria.