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To many rural families succession is a live issue.
Many hurdles need to clear prior to a Restructure of Assets for succession.
Some hurdles relate to Impacts pursuant to Duties Act 2001 (Qld) (Stamp Duty) and Land Act 1994 and Capital Gains Tax (CGT).
The Concession that keeps on giving!
Stamp Duty is not all dire, providing some exemptions /concessions. Family Business Concession (FBC) may reduce or eliminate duty payable on a transfer of property, where it involves a prescribed family business and certain family members. FBC has been the subject of law reform (the good type!) and not once, but twice in recent times.
It may just be FBC keeps on giving!
Through FBC, the owner of property used for primary production (or residential property incidental) may transfer to certain family members to carry on the primary production, saving stamp duty.
What has changed?
Prior to 12 June 2014, FBC was only available if the property was transferred to an “ancestor” of the owner. In this regard, the property could only be transferred to a child or grandchild.
From 12 June 2014, “ancestor” was substituted with “defined relative”. This new term has a far greater reach than its precursor. The owner of property used for primary production can still transfer to a child or grandchild, but in addition, may also transfer to their spouse or grandparent, parent, brother, sister, uncle, aunt, nephew or niece and any in-law.
Prior to 1 July 2016, FBC was only available to the extent the transfer of property was by way of “gift”. If you did not meet the gift provisions you would still pay stamp duty on the transfer.
From 1 July 2016, the requirement for the transfer to be by way of “gift” has been removed.
On a practical level, these changes enable more primary producers to put into effect during their lifetime, their wish for succession planning and for a family member to take over the primary production business. The benefits of participating in succession planning include:
Consider the following Example:
Under his will, a father gifts the whole of his estate to his two (2) sons, in equal shares. Included in his estate is a cattle property, which is the family’s primary production business. Initially, both sons run the cattle property. In subsequent years, one son finds the courage to pursue his life-long dream of moving into another area.
Not having any children of his own, and wanting to keep the primary production business within the family, he transfers his share of the cattle property to his nephew and asks for in return, the nominal amount of $10,000 to pay for his first year’s relocation.
The nephew is encouraged to progress the family’s primary production business on the basis of his share in ownership.
With the changes to Stamp Duty, the transfer of the one half of the property can now occur without attracting stamp duty.
Capital Gains Tax (CGT)
Whilst there are Stamp Duty FBC applicable for restructure of assets there are not similar family concessions/relief for CGT.
Notwithstanding, CGT applies only to assets acquired on or after 20 September 1985, with gains (or losses) on assets owned before that date, being pre-CGT assets, not being subject to a CGT.
If an Asset was acquired after 20 September 1985, CGT provisions will more than likely to Restructure.
Therefore, it is imperative to discuss with your accountants/financial advisors and lawyers how a Restructure may proceed for succession and any applicable CGT issues.
Restructure may be able to be documented to ensure CGT is not accelerated. In addition there may be some relief from CGT where there is no uplift in value of the Assets or under applicable exemptions, rollover or concessions (eg small business concessions) and the like.
CGT is certainly not a restriction to Restructure if actioned correctly.
Should succession be an issue Emanate encourages your family to consider and take advantage of the flexible succession options now available.
Should you wish to proceed we will leave it for you to make contact with us to discuss the impact of the changes to enable a restructure for succession.
Should this be of interest to you, would you please feel free to contact Emanate Legal 07 47270100, for an obligation free discussion in relation to restructure for succession.