You can now have more trust in NSW primary production family transfer duty exemptions

September 22, 2023

Since 1994, families in the rural sector have been able to claim relief from transfer duty on the transfer of farming properties between family members, however until recently this was limited to property transferred to individuals.   Recent changes and clarifications by Revenue NSW have seen this exemption expanded to transfers to trusts, companies and self-managed superannuation funds.

In our case, we transferred 9 properties, from trusts and individuals to 5 separate trusts with the ‘child’ as one of the controllers and default beneficiaries of the trusts.  This will allow asset protection and greater estate and succession planning flexibility for generations to come.

Conditions that had to be met

We were able to meet the conditions of the exemption in Section 274 of the Duties Act 1997 (NSW), which have been broadened as shown by the italicised words:

• The land must be used for primary production. A family company was carrying on a farming business on all of the land.
• The transferor, or person directing the transferor, must be a member of the family of the transferee, or person directing the transferee. Some land was owned by the parents and the child’s spouse and some land was owned by family discretionary trusts.
• The land must be used for primary production in connection with a business carried on by the transferee, or person directing the transferee, or by a member of the family of the transferee, or person directing the transferee, immediately before the transfer. Once again, the family company carried on the farming business.
• The business must continue to be carried on by the transferee or person directing the transferee. The family company would continue to carry on the farming business.

Who are the members of the family?

Under the exemption a ‘member’ of a transferee’s family includes the transferee’s spouse and the following relatives of the transferee or the transferee’s spouse: parent, grandparent, brother, sister, nephew, niece, uncle, aunt, child, grandchild and spouse of those family members.

Who is the person directing the transferor/transferee?

Where the transferor or transferee is a company in its own right, the person directing is a shareholder who holds 25% of the ordinary shares of the company.

Where the transferor or transferee is a discretionary trust, the person directingis a person who is a default capital beneficiary of the trust with an interest of at least 25%.

Where the land is owned by a SMSF, the member(s) of the SMSF will be the person directing.

Note the above 25% interests can be an aggregate of a number of people in the same class.

For our transferor trusts we had mum and dad as equal default beneficiaries of some, which satisfied the directing the transferor 25% test quite easily.

One transferor trust was more complicated as it had a very large class of default beneficiaries. By identifying the relationship of all of the beneficiaries to the child, we could identify a group of people who were closely enough related to be family members and who between them held 25% of the default beneficiary interest, thus satisfying the directing the transferor.

The transferee trusts all had the child as a default beneficiary with either a 25% or 33% share, satisfying the directing the transferee test.

Carrying on the primary production business

The farming business can be carried on by a sole trader, a partnership of individuals, a company or a trust.

The test is relatively easy to satisfy where the business is being carried on by individuals who include the transferee or family members of the transferee.

As we had a company carrying on the business, we had to look to who was deemed to control the company.

The relevant ruling states that in determining whether “control” is made out:

• Control is concerned with the ultimate power to decide how an entity acts.
• For a company, control normally resides with the shareholders with majority voting rights.
• A trust is controlled by the trustees or if there is a corporate trustee, then by the persons who control the corporate trustee EG shareholders.
• Where a trust has an appointor who has the power to replace the trustee, then the trust will be controlled by the appointor.
• We had quite a complicated corporate structure but ultimately, we could identify that the child had control of the faming company through various shareholdings and appointorships.

Don’t forget the tax

Of course, CGT is always a consideration, and we were fortunate the Small-Business CGT concessions were available.

Structuring implications

Given the intricacies of the tests to be satisfied to obtain the duty exemption, this makes it even more important that you get good structuring advice before establishing any company or trust or purchasing any primary production land, to make sure a simple slip of the pen does not rule out a future duty exemption.

If you would like to discuss duty exemptions or structuring issues more broadly, please get in touch with our agribusiness team.