From 1 July 2016, significant changes were made to the Duties Act (Qld) in respect of intergenerational business property transfers for primary producers.
Prior to this change, a transfer of primary production land to the next generation was only exempt from duty to the extent that it was by way of gift and there was no "consideration". In practice, because consideration under the Duties Act includes the assumption of debt, where the next generation refinanced a loan in the course of being gifted the land, the amount of the relevant debt was dutiable.
From 1 July 2016, section 105 of the Duties Act was amended such that the dutiable value of business property which is used to carry on a primary production business is taken to be nil. This means that, provided the other requirements of the relevant part are met, a transfer of intergenerational farming land and personal property to the next generation will not attract duty, whether debt is assumed in the course of the transaction or not.
A practical and basic example of the advantages for primary producers of this change is illustrated by the case study below.
Duty or no duty?
Jack and Jill are in their late sixties and wish to retire, giving control of their primary production property (beef cattle) to their eldest child, which includes primary production land with a total value of approximately $20 million.
Associated with the transfer of this property, their son will need to refinance the existing debt of $5.4 million.
Pre-1 July 2016, the $5.4 million assumption of debt would have been regarded as consideration with duty payable to the Office of State Revenue of over $290,000.
The same transaction from 1 July 2016 no longer incurs duty, a saving of well over a quarter of a million dollars in transaction costs.
Care still needs to be taken to ensure that all the requirements for the concession are met, in particular meeting the definition for defined relative (in respect of the transferor) and ensuring that the transferee does not take the land as trustee of a trust.
A further budgetary measure that was announced by the Queensland government at the same time as this duty change was the grant of up to $2,500 to seek up-to-date and best practice information on financial management, mitigating climate risks, succession planning and multi-peril crop insurance options. Detail on this grant is not as yet fully available but is expected to be announced in the near future.
If you have any questions in regard to the changes to duty for primary producers, please contact me.