Farm Succession Plan & Tax Planning
Tax planning for the future is an important element in any farm succession plan. When you transfer your farming business or assets to the next generation, you may trigger tax liabilities. Eligibility for tax relief often requires meeting very specific criteria, so it is important to understand the likely tax consequences of your retirement and of your death in your farm succession plan.
Some examples of tax relief available to farmers include:
- A full exemption from stamp duty on transfers of land used for primary production to the next generation;
- A partial capital gains tax main residence exemption for for up to 2 hectares of land used as your main residence and predominately for private or domestic purposes;
- Small business capital gains tax retirement concessions for small businesses with an aggregate turnover of less than $2m, such as:
- The 15-year exemption– If your business has continuously owned an active asset for 15 years and you’re aged 55 or over and are retiring or permanently incapacitated, you may not have an assessable capital gain when you transfer the asset.
- 50% active asset reduction– If you do not qualify for the 15 year exemption, you may be able to reduce the capital gain on an active asset by 50% (in addition to the 50% CGT discount if you’ve owned it for 12 months or more).
- Retirement exemption– If you do not qualify for the 15 year exemption, you may choose to apply this concession after the 50% active asset reduction towards the remaining 50%. Capital gains from the sale of active assets are exempt up to a lifetime limit of $500,000. If you’re under 55, the exempt amount must be paid into a complying super fund or a retirement savings account.
- Rollover– If you transfer an active asset, you can defer all or part of a capital gain for two years, or longer, if you acquire a replacement asset or incur expenditure on making capital improvements to an existing asset.
Again, eligibility for these reliefs requires you to meet specific criteria. We would recommend that you consult with an accountant and/or tax lawyer for further information on your specific circumstances. In addition to this, on your death, any capital gain arising from transferring an asset of your personal estate to a beneficiary is disregarded or in practice, may be deferred. This means that it can be “worn” by your beneficiary and therefore, the tax position of your beneficiary needs to be considered in your farm succession plan. To get assistance with your Farm Succession Plan call the Rural Law team on 02 8987 0000.