The below media release is from 2015, has been provided by Sam Radici, Pacer Legal
Transfer of Farming Land Exemption
Ordinarily, the transfer of real property such as farming land would be subject to duty imposed at general rates in accordance with the Duties Act 2008 (Western Australia) (DutiesAct).
However, the Duties Act provides for an exemption from duty in relation to certain transfers to “family members” of:
- farm land; or
- shares in a company or units in a unit trust that operate a farming business.
This article only considers the provisions that apply where the owner of the farming land is an individual and doesn’t consider the landholder duty exemptions afforded to certain landholder entities (companies or unit trusts) that are engaged in primary production.
The main policy intention behind the provisions are to remove the disincentive (cost) to transferring farming property to a family member or members who worked the farm during the owner’s lifetime. It was expected that by removing the disincentive of transferring property to another family member who actively farmed the land during the owner’s lifetime, that it would increase the commitment of that member to ensuring the long term performance of the farming property. Also, the exemption helps facilitate the intergenerational transfer of the family farm which is a significant issue that faces most farming families.
A transaction is only an exempt family farm transaction and not subject to duty where:
- each transferor was using the farming property in the business of primary production immediately prior to the transaction taking place; and
- when the liability to duty arose, each transferee intends to continue to use the farming property in the business of primary production.
It is noted that for the purposes of this exemption, there is no restriction on whether consideration is paid for the transfer of the relevant property.
The key requirements for the exemption to apply are, that:
- the property is farming property;
- the property is used by the transferor in the business of primary production property and is intended to be used by the new owner (transferee) for farming purposes immediately after the transfer. The relevant land can be used by an entity that is related to the transferor for the purposes of these provisions; and
- the transferor and the transferee are “family members” or satisfy certain relationship requirements. In this regard, the transferor (owner of the land) needs to be an individual. However, the transferee doesn’t need to be an individual and can be a family trust, if certain “related” requirements are satisfied.
Each of these elements are considered briefly.
What is Farming Property?
Farming property is defined to mean farming land or other dutiable property that is predominately used in connection with the business of primary production.
In this regard:
- farming land is defined to mean land in Western Australia that is primarily used for primary production purposes; and
- primary production is defined to include:
- the growing or rearing of plants;
- the breeding, rearing or maintenance of living creatures; and
- the breeding or rearing of horses,
for commercial purposes of selling the animal or produce.
Farming property is considered to be being used in the business of primary production even if some (but not all) of the farming land is leased to another person, and under the lease, the lessee is using the land solely or dominantly for the purposes of silviculture or reafforestation.
Transferor’s Use of the Farming Property
The transferor (owner) must be an individual (or owned by a bare trustee) using the farming property in the business of primary production either directly or indirectly, immediately before the transfer takes place.
For the purposes of these provisions, the transferor can use the farming property indirectly where the property is used through a trust, corporation or partnership or through a combination of entities in which the transferor is “related”.
Where the farming property is used by another entity in the business of primary production, to satisfy the related requirements, essentially all the members, beneficiaries or owners of that entity must be a family member of the transferor.
For example as highlighted in the decision West and the Commissioner of State Revenue  WASAT 36 (West), where the land is owned by individuals but used in a farming partnership, for the transferor to satisfy the relevant requirement, all the members of the partnership must be individuals that fall within the definition of family members.
Who is a family member?
The concept of who a family member is, is crucial for the purposes of these provisions.
A reference to a family member for the purposes of these provisions is to:
- a child or remoter lineal descendant;
- a parent or remoter lineal ancestor;
- a brother or sister, or descendant of a brother or sister (eg. niece or nephew);
- an aunt or uncle;
- spouse or de facto partner of 2 years of a relative listed above; or
spouse, former spouse, de facto partner of 2 years or former de facto spouse of 2 years.A remoter lineal descendant and remoter lineal ancestor refer to persons who are related directly as descendants or ancestors of a person (eg. a direct line of relationship that can be traced up through a person’s parent or grandparent etc or down through a person’s child or grandchild etc).
The definition of transferee is an important definition to consider in the context that the new owner of the land doesn’t necessarily need to be an individual who is a family member of the transferor. However, a central requirement still revolves around some form of a family relationship.
A ‘transferee’ for these provisions means the person that is:
- a family member where the transferee owns the property beneficially;
- a trustee of a trust, other than a unit trust scheme or a discretionary trust, if the beneficial owner of the trust property, under the trust, is a family member of the transferor; or
- a trustee of a discretionary trust, if all the persons who have a share or interest in the trust property or who may benefit from the discretionary trust are family members of the transferor, and the transferor is not a beneficiary of the trust and does not control the discretionary trust.
Therefore, the transferee can’t be a company or a unit trust.
So, while the transferor must be an individual to fall within the required family relations, the transferee doesn’t necessarily need to be an individual.
Also, it is important to emphasise that the transferor can’t be involved in farming the land post the transfer of the property. This is because the land must be farmed by a family member of the transferor or a related entity of that family member. As the section of the Duties Act that defines “family member” doesn’t include the transferor of the land in the definition, the transferor can’t be considered to be a family member.
West decision – impact on farming partnerships
The recent decision in West is important in determining the eligibility of the exemption where the land is used by a partnership.
In West, a person transferred his 1/3 interest in farming land to his brother and mother. The relevant farming land was used in the business of primary production, in a partnership (both pre and post transfer) that included a corporate partner.
Whilst, the Commissioner of State Revenue agreed that the land was used in the business of primary production, the exemption was not allowed as the land was not farmed in a partnership that was ‘related’ as provided for in the Duties Act.
It was argued by the applicant (transferee) that due to the nature of partnership, a partnership has no legal personality separate and distinct from that of its individual partners. Therefore, consideration needs to be given to the use of the land by each individual partner.
The Tribunal stated that consideration needed to be given to the relevant partnership and its relationship to the transferee and transferor because of the specific provisions contained in the Duties Act. Accordingly, the Tribunal held that the transfer wasn’t subject to the exemption because the relevant definition of a related entity in the context of a partnership didn’t include a corporation and provided that each member of the partnership must fall within the definition of a family member, pre and post transfer. In this instance, if all of the partners in the partnership were individuals who fell within the definition of a family member, then the exemption is likely to have been granted.
Simple examples of the Family Relationship
The following are some simple examples intended to look at the family relationships and are based on the assumption that the relevant property is used in the business of primary production and that the transferee intends to use the land in the business of primary production.
Owner of Land: Mum and Dad
Land used by: Partnership between Mum and Dad
Intended transferee: Child of Mum and Dad
Use of land post transfer: Child of Mum and Dad as a sole trader
This is a simple example that would satisfy the relevant relationship requirements as the land was used in a qualifying partnership and will be used by the child directly post transfer.
Owner of Land: Dad
Land used by: Partnership between Mum, Dad and Child of Mum and Dad
Intended transferee: Child of Mum and Dad
Use of land post transfer: Partnership between Child of Mum and Dad and Dad
This situation would not satisfy the requirements as Dad can’t be involved in farming the land post transfer. This emphasises an important point that for the purposes of the provisions a transferor doesn’t fall within the definition of a family member.
Owner of Land: Husband and Wife
Land used by: Husband and Wife in partnership
Intended transferee: Brother and sister-in-law of Husband
Use of land post transfer: Partnership between Brother and sister-in-law of Husband
In this instance, the husband’s brother and sister-in-law aren’t family members of the wife and therefore the transfer is only eligible for a 50% exemption.
Owner of Land: Dad
Land used by: Dad
Intended transferee: Discretionary Trust, with definition of beneficiaries including the child and Dad, dad and charities
Use of land post transfer: via the Discretionary Trust
This transfer would not be eligible for the exemption as only family members of the Discretionary Trust can be beneficiaries of the trust and this also excludes Dad from being a beneficiary of the trust.
Applying for the Exemption
Where the relevant transaction falls within the definition of an exempt family farm transaction, an application for the exemption needs to be made to the Commissioner of State Revenue using the specified form.
It is also important to note that the exemption doesn’t apply to farming property that was transferred within the land 5 years under the farming duty exemption.
There are also specific provisions that apply where the transferee is family trust. These provisions deem that land, if acquired by the trust under the farming duty exemption is disposed of where, during the lifetime of the transferor, the trust still owns the land and has added a non family member to its class of beneficiaries (eg the transferor or a company) .
The above is an overview of how the relevant provisions work and as always, careful analysis needs to be done prior to undertaking a transaction to ensure that it qualifies for the exemption.
 unless otherwise specified a reference to an Act is a reference to the Duties Act
 it is noted that the raising or maintaining horses for racing purposes doesn’t qualify as a primary production business