The transfer of farmland to another family member is a significant decision, and a pivotal time for a farming family. Often, even when parents are eager to retire from running the business, it can be difficult for them to fully hand over the reins to their children. It is easy to overlook the important legal factors which must be considered before transferring farmland, which can trigger adverse consequences.
Stamp Duty and the Family Farm Transfer Exemption
Typically, one of the most important financial considerations when transferring, purchasing or buying property is stamp duty. Stamp duty is an impost on some transactions set by State legislation. In most cases, stamp duty is calculated based on the value of the property being transferred, and the more expensive the property, the higher the stamp duty tax. Luckily for farmers, who often hold very significant values of farmland, but are without substantial cash reserves, a “Family Farm Transfer” exemption exists in the legislation.
Without the exemption, which must be applied for and granted before settlement of the land transaction, stamp duty will apply to farmland in South Australia, regardless of whether the vendor is being paid for the land or not.
The “Family Farm Transfer” exemption incentivises younger family members to stay on the farm, and eventually take over the business. It further prevents each generation of a farming family paying stamp duty to take the land from their predecessor. To qualify for the exemption, the land being transferred must be wholly or mainly used for primary production. Primary production includes any business that cultivates soil, produces crops, livestock or harvests aquatic organisms.
The exemption will apply when the transfer of the farmland is to a family member (a list of permitted relationships exists) who you have an ongoing business relationship with. This business relationship must:
- Relate to a primary production business on the land being transferred;
- Have existed for at least 12 months prior to the date of the transfer;
- Not arise specifically to take advantage of the exemption.
The exemption can also apply to a transfer of land to a Family Trust, provided the beneficiaries of the trust are relatives. If a beneficiary of the trust is a charity or another organisation or company, then the exemption does not apply. For this reason, Family Trusts for farming families are highly specialised, and farmers generally should not hold their farming land in an “Off-the-shelf” Family Trust.
If you are eligible for the exemption, then the only fees payable upon transfer are those charged by the Lands Title Office (which depend on the value of the property) and a small PEXA fee. Usefully, a fee calculator can be found on the Revenue SA website which allows you to estimate the amount payable.
Transferring your farm to another family member will have an impact on your succession planning. As the circumstances of each family and transfer of farmland varies, it is recommended you meet with a solicitor to discuss the following:
- If you are transferring farmland to one of your children, the impact this may have on any other children, and your own future needs;
- Updating your Will to reflect the transfer of farmland to a family member, if necessary;
- The correct structure to hold your farmland, and other assets in (for instance, a discretionary trust, testamentary trust or self-managed super fund);
- The best process to transfer assets to minimise fees, taxes (including Capital Gains Tax) and stamp duty.
A comprehensive plan that your whole family is aware of, that operates harmoniously with up-to-date wills, can ensure a smooth transition across the generations, allowing the focus to be on running of the farm. Forward-thinking succession planning will reduce the chance of an emotional and expensive dispute, unexpected taxes and stamp duty, and uncertainty for your loved ones.
Process of Transferring Farmland with the Lands Titles Office
When transferring farmland, it is possible to download the relevant forms from the Lands Title Office website and fill them out yourself. However, it is advisable to contact a conveyancer or solicitor who is experienced in family farm transactions, particularly if your assets are held in a trust. A solicitor will assist you in applying for the available exemption, and ensure you have considered the impact of the transfer on your succession planning.
If you require advice on the transfer of farmland to a family member, contact us on (08) 8223 3199 or use the message box below to speak to one of our experienced solicitors.
This blog post was written and researched by Law Clerk and fourth-year law student Dwayne Freeman.