4.12.11.20 Qualification provisions for the primary production concession

Date of effect

This topic has effect to controlled primary production trusts from 1 January 2002.

Summary

This topic contains the following information:

  • qualification provisions for the primary production concession
  • access to income and incidental benefits during the deprivation period, and
  • historical threshold amounts.

Qualification provisions for the primary production concession

Primary producers who meet certain income and asset requirements will be allowed to retain a limited appointorship role in the primary production trust, and not have the primary production assets or income attributed to them only if:

  • the appointor (and their spouse) do not have any other position in the trust, including income or capital beneficiary, AND
  • they have very limited powers as appointor.

This concession allows a primary producer, such as a farmer, to retire and hand control of the primary production assets and income to his/her successor while retaining a right of veto in case of the proposed sale or break-up of those assets.

The following sets out the criteria that must be satisfied if an attributable stakeholder of a controlled primary production trust wishes to qualify for this concession:

  • the trust must be carrying on a primary production enterprise, AND
  • more than 70% of the trust's assets (excluding the net value of the principal residence of the individual and their spouse) are used wholly or principally for carrying on the primary production enterprise, AND
  • the total adjusted net value of assets that are
    • owned or controlled by the individual and their spouse, AND
    • used wholly or principally for the purposes of carrying on a primary production enterprise
  • is LESS than the primary production attribution threshold (see table below), AND
  • the average adjusted net primary production income of the individual and their spouse in the 3 tax years preceding the claim for the concession is LESS than the current income threshold of the FTB Part A (see table below), AND
  • if the individual and their spouse did not have adjusted net primary production income for all of the 3 tax years preceding the claim for the concession then the delegate may determine the applicable period to be used, AND
  • at the time the concession is claimed the individual and their spouse are not actively involved in the primary production enterprise, AND
  • at the time the concession is claimed an eligible descendent is operating the primary production enterprise, AND
  • at the time the concession is claimed a provision has been inserted into the trust deed to the effect that the individual and their spouse can only appoint a trustee/s if
    • the trustee concerned dies, resigns or becomes subject to a legal disability, OR
    • in accordance with a statutory law relating to the appointment of trustees, AND
  • at the time the concession is claimed a provision is inserted into the trust deed to the effect that the individual and their spouse are able to veto or direct the decision of a trustee only
    • in relation to the sale of land used for the purposes of carrying on the primary production enterprise, OR
    • in relation to the sale of fishing rights or timber rights used for the purposes of carrying on the primary production enterprise, OR
    • in accordance with a statutory law relating to the appointment of trustees, AND
  • at the time the concession is claimed neither the individual or their spouse, is or is capable of becoming a trustee of the trust, AND
  • at the time the concession is claimed, a group (section 1208U(7)) in relation to the individual and their spouse is not able to vary the trust deed of the trust, AND
  • at the time the concession is claimed neither the individual or their spouse, benefits or is capable of benefiting under the trust, either directly or through interposed companies, business partnerships or other trusts.

Exception: The individual and their spouse would be able to retain a life interest in their principal residence and the right to some incidental fringe benefits, such as:

  • farm produce for personal consumption
  • water, fuel, gas or electricity used in the principal home in which they retained a life interest, and
  • any other non-cash benefit that is minor and provided on a basis that is infrequent and irregular.

Act reference: SSAct section 1208U Concessional primary production trusts, section 1208U(3A)-'eligible descendant', section 1208U(4) Concessional primary production trusts, section 1208U(7) A reference in this section …, section 1208W Net value of asset, section 1208X Value of entity's assets, section 1208Y When asset is controlled by an individual, section 1208Z Adjusted net value of asset, section 1209 Adjusted net primary production income, section 1209A Net income of a primary production enterprise, section 1209B Net income from a primary production enterprise-treatment of trading stock, section 1209C Permissible reductions of income from carrying on a primary production enterprise

FAAct Schedule 1 clause 38N Income free area (FTB Part A Rate)

Access to income during the deprivation period

If the individual and their spouse are serving a 5-year deprivation period due to the gifting of the assets of the primary production trust they will be able to access income (other than as an income beneficiary) from the private trust, up to the current income threshold of FTB Part A (see table below). Access to this income will be during the DEPRIVATION PERIOD ONLY.

Explanation: This income could be in the form of wages or consulting fees but cannot be in the form of distributions as the individual and their spouse are no longer income or capital beneficiaries of the trust.

Example: Joe and Edith are retired farmers, aged 66 and 65 respectively. They have handed over operation of the farm to their son Bill. Joe and Edith are both receiving Age. They made succession and retirement plans more than 6 years ago and transferred their farm assets to a discretionary private trust. Joe and Edith are the appointors of the trust and they live in the family home, which is worth $80,000 and is part of the trust assets.

The total value of the trust is $900,000. It consists of the farmland, machinery, livestock and the family home. They also have a liability against the farming property of $110,000. Their (primary production) net adjusted taxable income over the last 3 tax years is ($30,000 + $25,500 + $23,000) ÷ 3 = $26,166.

While Joe and Edith are happy to give up their interest in the trust and for their son Bill to have control of and run the farm, they are concerned that he may sell the property and move into town. They decide to take advantage of the concession and retain a right of veto should Bill decide to sell.

As the primary production assets of the trust are more than 70% and the NET value of the primary production assets are less than the threshold (($900,000 − $110,000) − $80,000 = $710,000) and the average adjusted net primary production income for the previous 3 tax years is less than the FTB Part A income threshold, Joe and Edith qualify for the concession.

In addition, Joe and Edith maintain a life interest in the family home and are able to access income from the farm during their deprivation period.

Note: If Joe and Edith access this concession and give away the trust assets before 1 January 2002, they will not be subject to deprivation. If they take this action on or after 1 January 2002 the deprivation provisions apply to the assets they have 'gifted' to their son.

Act reference: SSAct section 8(1)-'income', section 1208V Individual ceases to be an attributable stakeholder of trust-receipt of remuneration or other benefits from the trust during asset deprivation period, section 1073(1) Certain amounts taken to be received over 12 months

FAAct Schedule 1 clause 38N Income free area (FTB Part A Rate)

Policy reference: SS Guide 4.12.9 Resignations from a Controlled Private Trust or Controlled Private Company

Historical threshold amounts

The following table shows the historical threshold amounts:

Date Primary production attribution assets thresholds Income threshold of FTB Part A
01/07/2000 $750,000 $28,200
01/07/2001 $793,500 $29,857
01/07/2002 $818,000 $30,806
01/07/2003 $842,500 $31,755
01/07/2004 $862,750 $32,485
01/07/2005 $885,250 $33,361
01/07/2006 $910,000 $40,000
01/07/2007 $940,000 $41,318
01/07/2008 $968,250 $42,559
01/07/2009 $1,004,000 $44,165
01/07/2010 $1,025,000 $45,114
01/07/2011 $1,052,750 $46,355
01/07/2012 $1,085,500 $47,815
01/07/2013 $1,109,500 $48,837
01/07/2014 $1,139,500 $50,151
01/07/2015 $1,158,750 $51,027
01/07/2016 $1,178,500 $51,903
01/07/2017 $1,196,250 $52,706
01/07/2018 $1,219,000 $53,728
01/07/2019 $1,241,000 $54,677
Last reviewed: 11 November 2019