In succession planning, stamp duty is a cost borne by the transferee – typically the 2nd generation. However, the potential stamp duty cost of the asset transfer(s) is a relevant factor for the whole family as it affects the viability of the succession plan as a whole.
Generally speaking in Queensland “transfer duty” is imposed on the “dutiable value” of a transaction, which is:
- the consideration paid or payable for the transaction, or
- the unencumbered value of the dutiable property that is the subject of the transaction,
whichever is the greater.
The amount of consideration includes monetary consideration paid or promised (eg vendor finance) and any other amounts, including debts assumed (eg refinance of bank debt).
However, a valuable stamp duty concession is available for transfers of primary production land and other “business property”* (eg plant and equipment) between family members where all of the following are satisfied:
- the property is used to carry on a family business of primary production;
- the transferor (“seller”) is a “defined relative” of the transferee (“buyer”);
- the family business carried on using the property is carried on by the transferor, whether alone or with others;
- the business is intended to be carried on by the transferee, whether alone or with others; and
- the transferee is not acquiring the property as agent or nominee of another person.
*Note: The concession does not apply to transfers of water allocations or other water interests.
If all of these conditions are satisfied, then the concession applies and the unencumbered value of the property will be zero, meaning that there is no stamp duty payable.
This means that when a parent transfers primary production land and/or plant and equipment used in the farming business to a “farming child”, there will be no stamp duty payable.
Prior to 1 July 2016, this exemption was only available if the “defined relative” gifted the asset so that where the transaction involved an obligation on the “farming child” to pay a certain sum of money to the parent, say $1 million, then unfortunately, duty was payable with respect to that payment. Prior to 1 July 2016, that duty amount would have been $38,025.00.
Changes introduced on 1 July 2016 mean that regardless of what amount of consideration changes hands, if the requirements set out above are satisfied, there is no duty payable. These changes create opportunities to:
- secure the first generation some retirement funds via a vendor finance loan arrangement
- protect the family’s equity in the farm from the claims of third parties by utilising a 2nd registered mortgage.
What is a Family Business?
The Qld Office of State Revenue has published a Ruling setting out guidelines it uses to determine the existence of a family business. The Ruling says regard should be had to a number of factors including:
(a) whether the activity has a significant commercial purpose or character;
(b) whether there is more than just an intention to engage in a business (i.e. look to the extent of activity to develop same);
(c) whether there is an intention to make a profit as well as the profitability of the activity;
(d) whether there is repetition and regularity of the activity;
(e) whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business;
(f) whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit;
(g) the size, scale and permanency of the activity; and
(h) whether the activity is better described as a hobby, a form of recreation or a sporting activity.
Note: In the case of some gifts of farming assets happening now and some in the future, consideration needs to be given as to whether at that future time, the parent will still be carrying on a family business of primary production and therefore qualify for the concession.
Who is a “defined relative”?
In June 2014, the stamp duty concession was broadened beyond gifts from parents to children to include gifts of primary production land made to a primary producer by:
(a) the primary producer’s spouse;
(b) a grandparent of the primary producer (or a grandparent of the primary producer’s spouse;
(c) a brother, sister, nephew or niece of the primary producer (or a brother, sister, nephew or niece of the primary producer’s spouse);
(d) a child* or grandchild* of the primary producer (or a child or grandchild of the primary producer’s spouse);
(e) an aunt or uncle of the primary producer (or an aunt or uncle of the primary producer’s spouse);
(f) the spouse of anyone mentioned in paragraphs (b) to (f).
*Note: “child” does not include a “step-child”.
This publication has been carefully prepared, but it has been written in general terms and should be viewed as broad guidance only. It does not purport to be comprehensive or to render advice. No one should rely on the information contained in this publication without first obtaining professional advice relevant to their own specific situation.