As a young farmer buying your first farmland property in Victoria, you are entitled to a duty exemption or concession if you satisfy eligibility criteria.
This young farmer exemption is separate and distinct from the family farm exemption available on the transfer of a family farm.
The date of transfer (settlement), not the date of contract, is important as it determines which exemption or concession applies. If your contract is dated before 1 July 2018 but you settle on or after that date, the exemption or concession for transfers on or after 1 July 2018 is the one relevant to your purchase.
Transfers of a single parcel of land
Transfers from 1 July 2018:
- A full exemption from duty is available on farmland valued at $600,000 or less.
- A concession from duty is available for farmland valued from $600,001 to $750,000.
Transfers before 1 July 2018:
- A full exemption from duty is available on farmland valued at $300,000 or less.
- A partial exemption from duty is available on farmland valued at $600,000 or less. This is calculated by subtracting the duty payable on $300,000 from the duty payable on the value of the farmland (of $600,000 or less).
- A concession from duty is available for farmland valued from $600,001 to $750,000.
Transfers of multiple parcels of land
The transfer of farmland with multiple parcels is treated differently to the transfer of a single parcel of farmland.
Are you eligible?
You must satisfy these eligibility criteria:
- You must be under 35 at the date of the contract for the transfer of the farmland property.
- The property must be both yours and your partner’s first farmland property.
- The value of the property must not exceed $750,000.
- You must be carrying on, or intending to carry on, a business of primary production in relation to the purchased property.
Your partner is your spouse or domestic partner.
Are you a young farmer?
A young farmer is a natural person, who is under 35 at the date the contract for the transfer of the dutiable property is entered into and who is engaged in, or intends to engage in, a business of primary production in relation to the purchased property.
If your partner is 35 or over and is buying the farmland with you, you may still claim the exemption or concession on your share of the farmland.
Recognising the different structures by which a person can purchase farmland, the exemption or concession also applies to a young farmer business entity which may be a:
- nominee for a young farmer
- company (not acting in the capacity of a trustee under a trust) in which all the shares are owned by a young farmer, or the young farmer and the young farmer’s partner
- trustee of a discretionary trust, the capital beneficiaries of which are limited to a young farmer, or the young farmer and the young farmer’s partner
- trustee of a fixed trust, the beneficiaries of which are limited to a young farmer, or the young farmer and the young farmer’s partner.
Where a young farmer business entity buys the farmland, the young farmer in respect of that entity must be under 35 to be eligible for the exemption or concession.
First farmland property
The property purchased must be yours and your partner’s first farmland property. Accordingly, if either you or your partner has previously owned an estate in fee simple in farmland, you are both ineligible for the exemption or concession.
There are, however, no restrictions on ownership of non-farmland property so you are still eligible for the exemption or concession if you or your partner has previously owned non-farmland property.
It is common practice for a farmer to buy farmland in a company or trust structure. The Duties Act 2000 (the Act) disqualifies you from obtaining the exemption or concession where you have held an interest in an entity which owns or has previously owned farmland. As such, you will be ineligible for the exemption or concession if you or your partner:
- currently holds shares in a company that holds or has previously owned farmland
- previously held shares in a company if those shares were held at the same time that the company owned farmland
- is a beneficiary of a fixed trust and the trust property includes or has previously included farmland
- was previously a beneficiary of a fixed trust and, while you or your partner was a beneficiary, the trust property included farmland
- is a capital beneficiary of a discretionary trust and the trust property includes or has previously included farmland
- was previously a capital beneficiary of a discretionary trust and, while you or your partner was a capital beneficiary, the trust property included farmland.
If the farmland is being purchased by a young farmer business entity, the following interests will disqualify the entity from obtaining the exemption or concession where the purchaser is a:
- nominee for the young farmer and the nominee holds or has previously held farmland on trust for that young farmer
- company (not acting in the capacity of a trustee under a trust) and the company holds or has previously held farmland
- trustee of a discretionary trust and the trustee holds or has previously held farmland for that discretionary trust
- trustee of a fixed trust and the trustee holds or has previously held farmland on trust for that fixed trust.
The underlying rationale for these measures is that if you or your partner has, or has had, an interest in a company or trust which owned farmland, then you have already had the benefit of the farmland owned by that company or trust.
However, it is recognised that in some situations share ownership and trust interests may extend beyond family companies and trust situations. For example, you may own securities in a listed public entity which directly owns farmland primarily used for the business of primary production. Depending on the nature of the ownership of the securities in a listed entity, you may be ineligible for the duty concession.
Disqualifying interests
To ensure the provisions are read in accordance with the express purpose and object of the exemption, each individual transaction is assessed on its merits. We consider the following general principles in determining whether there is a disqualifying interest:
- What was the purpose for which the securities in a publicly listed entity were acquired? Were they acquired as part of an investment strategy for the purposes of obtaining an income stream?
- What are the farmer’s rights under the securities? Do you have any degree of day-to-day control or input into the decisions of the listed entity, or do you have limited rights such as those attaching to ordinary shares including the right to attend and vote at general meetings, and the right to profit distributions?
- Are you entitled to a distribution of farmland from the entity?
- How remote is the farmer’s investment from the farmland? For example, do you own the securities directly or do you own the securities more remotely through a series of other entities or investment platforms?
Accordingly, where you own securities in a publicly listed entity but those securities do not provide you with any relevant rights over the farmland held by the listed entity, then those securities are not regarded as a disqualifying interest for the purposes of the exemption or concession.
Primary production requirement
For contracts entered into on or after 20 November 2019
If the farmland was purchased by a young farmer or a nominee for a young farmer, within 5 years of the date of the contract for the transfer of the farmland, the young farmer must carry on the business of primary production on the farmland and must be normally engaged in a substantially full-time capacity in that business.
If the farmland was purchased by a company (not acting in the capacity of a trustee under a trust) or a trustee under a trust, within 5 years of the date of the contract for the transfer of the farmland, the principal business of the company or trust must be primary production on the farmland, and the young farmer must be normally engaged in a substantially full-time capacity in that business.
A person is ‘normally engaged in a substantially full-time capacity’ in the business of primary production if that business is the person’s main activity. There should be regular participation in the business for a considerable part of that person’s time. Casual or intermittent employment in the business does not satisfy this requirement.
For contracts entered into before 20 November 2019
Within 5 years of the date of the contract for the transfer of the farmland, the young farmer must be normally engaged in a substantially full-time capacity in the business of primary production of the type carried out on the farmland.
For all contracts, irrespective of the date they were entered into
A young farmer, or young farmer business entity, who has received the exemption or concession must notify us of any change in circumstances that may result in the primary production requirement not being fulfilled.
If a young farmer, or young farmer business entity, has received the exemption or concession and the primary production requirement has not been fulfilled, liability for duty will arise in respect of the property for which the exemption or concession was claimed.
Farmland with multiple parcels
The transfer of farmland with multiple parcels is treated differently to the transfer of a single parcel of farmland.
To qualify for the exemption or concession where multiple parcels of farmland are acquired, the dutiable value of at least one of those parcels must not exceed the relevant threshold, being $300,000 for transfers dated before 1 July 2018 and $600,000 for transfers dated on or after 1 July 2018. It does not matter whether the combined value of all parcels is over the relevant threshold.
The young farmer, or young farmer business entity, is then entitled to an exemption from duty in respect of either $300,000 or $600,000 of the total dutiable value of the transactions (depending on the transfer date). The exemption is applied against the dutiable values of the parcels of land in order of ascending dutiable values.
Example 1
On 1 March 2018, a young farmer entered into 3 dutiable transactions. The transfer date for these transactions was 30 May 2018. The dutiable values are:
- $200,000 (Transaction A)
- $300,000 (Transaction B)
- $500,000 (Transaction C).
An exemption in respect of $300,000 of the total dutiable value of the dutiable transactions is first applied to the dutiable transaction with the lowest dutiable value and then to the dutiable transaction with the next lowest dutiable value and so on. This means that Transaction A is fully exempt from duty and an exemption applies in respect of $100,000 of the dutiable value of Transaction B.
For the purposes of assessing the young farmer’s duty liability, Transaction B and Transaction C are taken to have a dutiable value of $200,000 and $500,000 respectively. Duty is calculated at the standard rates on Transaction B and Transaction C individually.
Example 2
On 5 June 2018, a young farmer entered into 3 dutiable transactions. The transfer date will be 30 September 2018. The dutiable values are:
- $250,000 (Transaction A)
- $600,000 (Transaction B)
- $700,000 (Transaction C).
An exemption in respect of $600,000 of the total dutiable value of the dutiable transactions is first applied to the dutiable transaction with the lowest dutiable value, and then to the dutiable transaction with the next lowest dutiable value and so on. Transaction A is fully exempt from duty and an exemption applies in respect of $350,000 of the dutiable value of Transaction B.
For the purposes of assessing the young farmer’s duty liability, Transaction B and Transaction C are taken to have a dutiable value of $250,000 and $700,000 respectively. Duty is calculated at the standard rates on Transaction B and Transaction C individually.
Buying farmland with someone other than your partner
Where a young farmer acquires a partial interest in farmland, the exemption or concession is available to each holder of a partial interest in the farmland, subject to satisfying the eligibility requirements.
Accordingly, where there are 2 eligible young farmers acquiring a half share interest in an estate in fee simple in farmland, each young farmer is entitled to the exemption or concession with respect to their interest. This applies whether the young farmer purchases with another person who is eligible or not.
Example 3
Adam and Ben, who are both eligible young farmers, each purchase a 50% interest in a farmland property on 1 August 2018. The total purchase price is $900,000. Accordingly, the dutiable value of each person’s interest is $450,000.
The young farmer’s exemption threshold is $600,000 so Adam and Ben each qualify for a full exemption from duty on their acquisition.
Example 4
On 1 September 2018, Cassie, who is an eligible young farmer, and Daniel, who is not an eligible young farmer, each purchase a 50% interest in a farmland property. The total purchase price is $800,000. Accordingly the dutiable value of each person’s interest is $400,000.
The dutiable value of Cassie’s interest falls within the young farmer’s $600,000 exemption threshold. Accordingly, Cassie is fully exempt from duty on their acquisition.
Daniel will, however, be liable for duty on his acquisition. Duty on $800,000 is $43,070. Accordingly, Daniel will be liable for duty on the amount of $21,535, being 50% of $43,070.
‘Carrying on a business’ for land owned by a young farmer
A business of primary production may be carried through one of a number of types of business structure, such as a sole trader, partnership, company or trust.
The Commissioner will take the view that a particular young farmer is carrying on the business of primary production in relation to the land if the farmer effectively manages and controls that business, regardless of the type of business structure used.
Example 5
Edward, an eligible young farmer, purchases an interest in a farmland property. Edward establishes a company, F Pty Ltd, to carry on the primary production business on the farmland as its principal business. Edward holds all of the shares in F Pty Ltd and is normally engaged in a substantially full-time capacity in the business.
To meet the primary production requirement, Edward must carry on the business of primary production on the farmland and must normally be engaged in a substantially full-time capacity in that business within 5 years of the transfer of the farmland.
In this case, the business is carried on by F Pty Ltd rather than by Edward in his individual capacity. Nevertheless, given Edward has effective control of F Pty Ltd the Commissioner would take the view that Edward is carrying on the business of primary production for which the land is used for the purpose of determining compliance with the primary production requirement.
Choosing the young farmer duty exemption/concession or the principal place of residence concession
If you buy farmland and it is also your principal place of residence (PPR), you may also be entitled to a PPR concession.
You must, however, choose between receiving the young farmer duty exemption or concession or the PPR concession. You cannot receive both. If you are unsure which one is better for you to receive, contact us on 13 21 61.
