Article by Lea Williams
Succession planning involves determining the business assets and devising strategies for their transition to the next generation. Assets earmarked for transfer usually include livestock, machinery, and farmland. In this article, I would like to focus on the transfer of farmland.
When farmland is held within a trust structure, modifying control of the trust can often be a straightforward process with no Capital Gains Tax (CGT) or Transfer Duty payable. However, if farmland is held in personal names or an unsuitable trust, there may be a desire to alter the ownership structure.
Farmland transferred to the next generation is deemed to have occurred at market value regardless of any consideration received.
Historically, the Small Business Division 152 Concessions have been an effective tool in facilitating the transfer of farmland, aiding clients in sidestepping capital gains tax, and increasing the tax value of the land for the next generation.
Eligibility for Division 152 concessions requires small business status, defined by the tax office as turnover under $2 million or net assets under $6 million. A $500,000 retirement exemption lifetime limit per person further narrows the ability to eliminate tax on a transfer.
Rising land values and increased turnovers have led to a dwindling number of clients qualifying for these concessions, or those eligible may exceed their lifetime limits.
The lesser known 328G rollover is an alternative to Div 152 concessions and applies to businesses with a turnover under $10 million. The 328G rollover provides a means to transfer business assets, including farmland, to a more favourable long-term structure while avoiding capital gains tax or maintaining the ‘pre-CGT’ status of land.
However, a drawback of the 328G rollover is its failure to elevate the tax value of farmland to market value, as achieved by Division 152. Additionally, the interplay between small business rollovers and the Duties Act poses challenges, potentially leaving businesses eligible for the rollover but not the Transfer Duty exemption.
The Family Farm Duty Exemption is available to primary producers who meet specific criteria and is critical to cost effective land transfers.
If you are no longer eligible for small business CGT concessions, we recommend that the 328G rollover be seriously considered. The higher turnover threshold ($10m instead of $2m) and absence of an asset test means that many farm businesses are potentially eligible. 328G is frequently overlooked but could prove to be the solution you need.
Given the intricacies of asset transfers, the ramifications of errors are substantial, and careful consideration should be made before transferring assets. Please contact your Byfields accountant if you would like more information.