duty is payable under the Duties Act 2000 (the Act) when property is transferred from one party to another unless an exemption applies.
The transfer of all, or part, of a family farm may be exempt from duty if the transfer meets certain conditions relating to the land and the transferor, transferee and the transfer is not part of a tax avoidance scheme.
Note: this exemption is separate and distinct from the exemption from duty that is available for young farmers (under the age of 35) buying their first farm.
The exemption applies to land that is used for primary production as referred to in ss. 65-67 of the Land Tax Act 2005. Different conditions apply, depending on the location of the land.
For land that is not in an urban zone of greater Melbourne, the exemption applies to land used primarily for primary production.
For land that is wholly or partly in an urban zone of greater Melbourne, the exemption applies if the land is used solely or primarily for a business of primary production.
In 2014, the definition of greater Melbourne was aligned with the urban growth boundary.
For the purposes of this exemption, primary production means:
- Cultivating land for the purpose of selling the produce of such cultivation,
- Maintaining animals or poultry for the purpose of selling them or their natural increase or bodily produce,
- Keeping bees for the purpose of selling their honey,
- Commercial fishing, including the preparation for such fishing and the storage and preparation of fish and fishing gear, or
- Cultivating or propagating for sale, plants, seedlings, mushrooms or orchids
The exemption allows the transferor to be a:
- Natural person (a term used to distinguish a person from a company, trust or institution),
- Company in which all the shares are owned by related natural persons, or
- Trustee for a
- natural person
- discretionary trust of which the capital beneficiaries are limited to related natural persons
- fixed trust of which the beneficiaries are limited to related natural persons
Transferor of urban zone land
For land that is wholly or partly in an urban zone of greater Melbourne the transferor must meet a number of further conditions.
The land must be eligible for the primary production exemption available under s67 of the Land Tax Act 2005. As such, if the transferor is:
- A sole, natural person, they must normally be engaged in a substantially full-time basis in the business of primary production of the type performed on that land or a relative of theirs must be engaged in this business in a substantially full time capacity and no other person is normally engaged,
- More than one natural person, at least one of them must normally be engaged in a substantially full-time basis in the business of primary production of the type performed on that land, the other or others are relatives of a person normally so engaged and no other person is normally engaged,
- A company, its principal business must be the type of primary production performed on that land, and all the shares must be held by persons normally engaged in a substantially full-time capacity in that business. Where dividends have been paid in the three years preceding the transfer, they must have been paid to the shareholders in proportion with their shareholdings, and at least 60 per cent of the dividends must have been paid to persons normally engaged in a substantially full-time capacity in that business,
- A trustee of a fixed or discretionary trust, its principal business must be the type of primary production performed on that land, with at least one of the beneficiaries, or a relative of one of the beneficiaries, being engaged in a substantially full-time capacity in this business
You can read more about the requirements of the primary production exemption under s67 of the Land Tax Act 2005.
The transferee can be a natural person, or the trustee of a fixed or discretionary trust.
If the transferee is a natural person, they must be a:
- Relative of the transferor. This includes a relative of a deceased partner of the transferor,
- Shareholder in the transferor company, or
- Beneficiary under the transferor trust
If the transferee is a trustee, certain conditions apply.
A relative, in relation to a natural person who wishes to transfer a family farm, means:
- Child or remoter lineal descendant (grandchild, great-grandchild, or similar) of the person or of the partner of the person,
- Parent or remoter lineal ancestor of the person or of the partner of the person,
- Brother or sister of the person or of the partner of the person,
- Partner of the person or a partner of any person referred to above,
- Child of a brother or sister of the person or of the partner of the person, or
- Brother or sister of a parent of the person or of a parent of the partner of the person
For the purposes of the family farm exemption, all of beneficiaries or shareholders must be related to each other.
Answers to common questions
- A child includes a legally adopted child or an illegitimate child,
- A partner includes a person’s spouse or domestic partner (irrespective of gender),
- A stepchild or step-grandchild must be a direct lineal descendant of the spouse of the transferor to qualify as a relative (so not all stepchildren or step-grandchildren are regarded as relatives under the definition),
- A niece or nephew of the transferor qualifies as a relative,
- A farm transferred to a relative who has never worked on it and who does not intend to, is exempt only if it is located wholly or partly outside an urban zone of greater Melbourne,
- The transfer of a family farm from a company (which beneficially owns the land) to shareholders or relatives of the company’s shareholders is exempt provided the shareholders are all related natural persons,
- The exemption is not available if the trust deed entitles a party that is not a relative or charitable institution to a distribution of a family farm, and
- The exemption will still apply if a trust can be varied to include additional relatives as entitled to a distribution of a family farm
Exemptions for transferee trusts
The transferee may be a trustee of a fixed trust which limits the beneficiaries to relatives of the beneficiaries of the transferor trust or charitable institutions.
Alternatively, the transferee may be a trustee of a discretionary trust which only allows capital distributions of the primary production land (including any part of the primary production land) to be made to a relative of the beneficiaries of the transferor trust or a charitable institution.
The trust deed cannot contain a variation clause that would permit the distribution of the family farm (or any part of it) to parties other than relatives or charitable institutions.
Apply for this exemption
From 1 July 2017, you must use the digital duties form to apply for an exemption.