Return of the cousins – what this means for transfers of primary production businesses between particular family members
Who should read this
Any person who owns a primary production business in Queensland and wants to sort out their succession planning arrangements.
Things you need to know
Historically, first cousins were not included as defined relatives for the purpose of accessing the concession on transferring primary production businesses in Queensland, but the definition of defined relative has now been updated.
What you need to do
If you own a primary production business in Queensland and you want to transfer that business to a family member, you can now access the full duty concession if you transfer the business property to a defined relative, and satisfy the other conditions in Part 10, Division 1 of the Duties Act 2001 (Qld).
On 20 August 2020, the Queensland Government amended the definition of ‘defined relative’ in the Duties Act 2001 (Qld) (Duties Act) to include first cousins and their spouses. This definition relates to who can access the duty concession available in Part 10, Division 1 of the Duties Act for transfers of primary production businesses between family members (Intergenerational Duty Concession). The inclusion of first cousins comes as a welcome update to the Duties Act for industry members, who have been pushing for the change for many years.
Broadly, the Intergenerational Duty Concession is available where there is a transfer or agreement to transfer business property of a primary production business between particular family members, where the business is, prior to the transfer, carried on by the transferee (i.e. the defined relative of the transferor) either alone or with others, and it is intended that the business would be carried on by the transferee (either alone or with others) following the transfer.
The Duties Act has historically not recognised first cousins and their spouses as eligible family members for the purposes of applying this concession. This might seem understandable as it is not particularly common (although not unheard of) for direct transfers of family farms to occur between cousins. However, it is the broader implications this change has in relation to the definition of family partnerships and family trusts that is of particular importance. Following this change, for example, a partnership of cousins (and their spouses) will be a family partnership and a partnership interest in such a partnership may be transferred between defined relatives without duty.
It should be noted, however, that this is not the first time first cousins have technically been included as defined relatives for the purpose of applying the Intergenerational Duty Concession, however it is the first time they have been involved on a permanent basis. That is, first cousins were first included as a defined relative on a trial basis by way of Public Ruling DA105.4.1, which was effective from 23 May 2017 to 22 May 2018. A further administrative arrangement (DA105.4.2, the Second Ruling) was announced by the Queensland Government on 19 December 2018 which retrospectively applied the broadened definition from 23 May 2017 to 22 May 2019 – and after that expired, a further Public Ruling DA105.4.3 (Third Ruling) was released which applied the broadened definition from 22 May 2017 to 22 May 2020.
While there was no announcement immediately following the expiry of the Third Ruling, and the Royalty Legislation Amendment Bill 2020 (Amendment Bill) did not receive assent until 20 August 2020 (nearly 3 months after the expiration of the Third Ruling), it helpfully applies retrospectively to all transactions entered into on or after 23 May 2018 (i.e. from the commencement of the Second Ruling).
For clarity, it is noted that the inclusion of first cousins and their spouses as defined relatives has no bearing on the availability of other duty concessions available under Part 10 of the Duties Act which relate to ‘prescribed family businesses’ rather than primary production businesses. This is because those transfers are only eligible for a concession where they are between direct lineal descendants (i.e. children and their ancestors).
Unfortunately, the amendment does not deal with issues that have been raised with the OSR in the past (and which were addressed through legislative amendment in New South Wales a few years ago) about the requirement that the primary production business must be conducted by the defined relative personally. This restrictive provision means that the duty exemption is not available for the transfer of a farm between defined relatives where the primary production business on that farm is conducted by a company. This is the case even if the defined relative is the shareholder and director of the company.
Special thanks to Tess Jager, Lawyer for her assistance in putting this article together.
For further information on any of the issues raised in the alert, please contact Duncan Bedford or Tess Jager.
This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.