Intergenerational Transfer Scheme

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Should I Transfer My Cane Farm To My Children?

Part of the Government assistance under the Sugar Industry Reform Program (SIRP) is called the Intergenerational Transfer Scheme.  The assistance provided by the Government is limited to an exemption from the usual requirements concerning gifting of assets which apply to limit entitlements to the age pension and the veterans' pension.  The Intergenerational Transfer Scheme is only relevant to cane farmers who would be eligible to receive the age or veterans pension except for their ownership of their cane farm.

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• What Is Intergenerational Transfer Scheme Assistance?
  

On 13 July 2004 the Family and Community Services and Veterans' Affairs Legislation Amendment (Sugar Reform) Act 2004 received assent to bring the Intergenerational Transfer Scheme into operation by amending the Social Security Act 1991, the Social Security (Administration) Act 1999 and the Veterans' Entitlements Act 1986.
The Intergenerational Transfer Scheme effectively allows certain cane farmers who give away their cane farm and all relevant farm assets to a child or descendant, to receive the age pension or veterans' pension as if they had not owned and given away that farm.  For farmers who are eligible, this means receiving the age pension or veteran's pension from the time you dispose of your farm.  The Scheme is similar to the Retirement Assistance for Farmers Scheme introduced by the Government in 1997.
There are a large number of requirements which must be met by the existing cane farmers, the cane farm and those receiving the cane farm in order for the existing cane farmer to qualify for the age/veterans' pension. 
The Intergenerational Transfer assistance by the Government relates only to the age/veterans' pension.
For further information on the Intergeneration Transfer Scheme See: http://www.daff.gov.au/sirp#intergentransfer

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• How Do I Find Out Whether I am Entitled To The Transfer Assistance?

Centrelink administers the age pension (see: http://www.centrelink.gov.au) and the Department of Veterans' Affairs administers the veterans' pension (see: http://www.dva.gov.au/pensions/mainpe.htm).  Both Centrelink and the Department of Veterans' Affairs can provide a written pre-assessment of eligibility for the relevant pension. 
In order to ensure you will be eligible for the pension once you transfer your farm, you should make a pre-assessment request in writing (and not by e-mail) prior to making any transfer of your farm.  Your pre-assessment request should set out sufficient information to enable Centrelink or the Department of Veterans' Affairs to advise you.  That information should include the information discussed below in relation to your sugarcane farm and your proposed gift of the farm.  You may need to contact Centrelink or the Department of Veterans' Affairs by telephone or in writing to find out exactly what information they require in your case.
You should also seek the advice of a lawyer in relation to the transfer of your farm and farm assets including the drafting of a deed of transfer, the tax implications of the transfer and the impact on your will.

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• What Is Required Of Me To Be Entitled to Assistance?

The most significant requirements to be entitled to an age or veteran's pension using the intergenerational transfer scheme are:

• You must have met all the requirements to be eligible for an age pension or veteran's pension excluding the ownership of your farm.  Eg to receive the age pension you must be 65 (for a man), and you cannot have a significant income or assets (other than those relating to your sugarcane farm) and your principal residence;
• You must be prepared to give your sugarcane farm, including all relevant farm assets (such as harvesting equipment, shares in the NSW Sugar Milling Co-operative Limited), to an eligible child or descendant;
• You must have had an "eligible interest" in your farm continuously for at least 15 years (usually this means being the farm's owner or a shareholder in a company which is the farm's owner); and
• You must have contributed a significant part of your labour and capital to that farm; and
• You must have derived a significant part of your income from that farm; and
• During the last 2 years at least, the capital, labour and income must have related to sugarcane farming.
  

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• What Is Required of My Sugarcane Farm To Be Entitled To the Transfer Assistance?

• During the last 2 years at least, the farm must have been a sugarcane farm;
• The farm must have been a sugarcane farm at all times since 29 April 2004 and continue to be one;
• The Total Net Value of your sugarcane farm or farms and your relevant sugarcane farm assets must be a maximum of $500,000 (Total Net Value of your cane farm is the market value of your cane farm and all relevant cane farm assets less your cane farm debts);
• If your principal residence is on your cane farm, the value of that home (and the surrounding private land used by the house up to 2 hectares) will be excluded from the total net value of your farm in calculating whether it exceeds $500,000 provided you retain a freehold, leasehold or life interest in your home after the transfer.
  
  

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• What Is Required of Those Receiving My Cane Farm To Be Entitled To the Transfer Assistance?

• The recipient of your cane farm must have been actively involved with the farm for 3 or more years prior to the completion of the transfer.
• Active involvement may include relevant studies as determined by the Secretary of the Department of Agriculture, Fisheries and Forestry.
  

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• When Can I Transfer My Farm?

You should seek a pre-assessment by Centrelink prior to making a transfer of your farm to ensure you are eligible for the age pension (or the Department of Veterans' Affairs for the veterans' pension) under the transfer scheme.
You can transfer your sugarcane farm on any date between 13 July 2004 and 13 July 2007. 
The Minister may defer the closing date of 13 July 2007 and/or you may be granted an extension where you have sought pre-assessment in writing within 28 days after 13 July 2007 and received an affirmative response from Centrelink or the Department of Veterans' Affairs. 

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• What About Other Family Members?

If you have several children (and/or grandchildren) or other dependants and you wish to give your farm to only one or some of them, those you do not give any interest to may be able to make a claim against your estate or those who do receive an interest (if you die within 2 years of making the gift) under the Family Provisions Act particularly if they are currently dependant on you for financial support.
You should seek legal advice in relation to your particular circumstances.

 

• Do I Have To Continue Living On My Cane Farm?

The legislation in relation to Intergenerational Transfer does not require you to maintain a principal residence on your farm.  However, you must do so if you want the valuation of your farm, for the purposes of Intergeneration Transfer, to exclude the value of a residence on the farm.  If your farm's total market value including any residences but excluding farm debt is less than $500,000, then you do not need to maintain any legal interest in that residence(s) for the purposes of Intergenerational Transfer.
If you do retain an interest in a principal residence on the farm, it may be easier legally if you retain a leasehold or life interest rather than a freehold interest because then there is no requirement to sub-divide your land.  Provided you do not retain a freehold interest in your home, your land will be transferred entirely to your children/descendants.  Only a leasehold or life interest in your home is required for the purposes of excluding it from the market valuation of your farm for the Intergenerational Transfer Assistance.

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• What Will Happen To Bank Loans Over My Cane Farm?

You and your children (or descendants) who receive your farm as a gift will need to re-negotiate any secured bank loans with the bank.  Once you cease to own your farm, you will be ineligible for a loan secured over the farm and may be unable to continue payment of any unsecured loans due to lack of sufficient income.  Therefore, you should ensure, before making the transfer, that your bank and your children receiving your farm agree for any bank debts to be transferred. 
If you decide to retain an interest in your principal residence on your farm, particularly if it is a freehold interest, you may need to discuss with your bank and your children/descendants whether you should retain some portion of your farm debt.  If you have a particularly high level of debt and/or if the value of your principal residence is particularly high, your bank may not agree to transfer the entire loan to the new farm owners who will not have full interest in the land.  If you do retain a portion of your farm debt, in respect of your home, you must be able to service that debt from your pension.
Your bank may also seek to impose restrictions on your continuing interest in your principal residence on your farm to ensure that they remain able to recover the money they have lent in the event that your children/descendants default on their loan and the property needs to be sold.  You will need to ensure that any restrictions imposed by your bank on your interest are approved by Centrelink or the Department of Veterans' affairs for the purposes of eligibility for the Intergenerational Transfer assistance.

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• What Tax Might I Have To Pay?

Capital Gains Tax could apply to your disposal by gift of your cane farm or assets where that farm or farm assets were acquired after 19 September 1985 and where the current market value of the farm or assets exceeds the price for which you purchased them.  However, provided you meet the requirements of the Intergenerational Transfer Scheme, it is likely that you will also be eligible for a small business exemption from capital gains tax.
In addition, if you have used the income tax averaging provisions for farming in past tax years, this may impact your ongoing tax obligations for the next 5 years.
You should seek legal advice in relation to your particular circumstances.

• How Will the Transfer Affect My Day to Day Finances?

Provided you meet all the requirements to receive the age or veterans' pension discussed above, you will start receiving the pension upon disposal of your cane farm and all farm assets. 
Assuming you retain an interest in a principal residence on a farm, you must continue to reside in that principal residence and must pay all necessary household expenses from your pension including expenses such as electricity, gas, telephone and household water.
If your children are living with you in the principal residence, this should not prevent you from reducing the market value of your cane farm by the value of your house for the purposes of the Intergenerational Transfer provided you maintain the necessary legal entitlement to the principal residence discussed above.  However, if your children pay you rent, this may impact your entitlement to your pension just as any other form of income may reduce your pension entitlement.

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• Will The New Farm Owners Be Eligible for SIRP Assistance ?

Yes.  Your children (or descendants) who receive your farm as a gift are likely to be eligible for same forms of SIRP assistance that you were as owners of your cane farm except where the relevant forms of assistance require ownership of the farm for a certain period of time.

 

Produced by Redfern Legal Centre.
This factsheet is no substitute for legal advice. If you have a problem please seek legal advice from your local community legal centre

Last updated January 2006