In this article:
Which Tax Rollover Fits?
Pathways at a glance
Why the Small Business Rollover is Unavailable
Why Division 152 Rarely Fits an Established Commercial Farm
Why Division 122 Remains Relevant
How this looks in a Northam Wheat Operation
The Commercial Purpose must Lead
Common Questions
The Next Step
Moving a Farming Business into a Company: Which Tax Rollover Fits?
Part 1 left the Calder family of Glenmore, near Katanning, with a decision: a company will ultimately run the sheep and cropping business, the farming land stays with Mum and Dad, and Sarah manages now with an agreed pathway to ownership. Nobody is selling.
Moving the farm into a company sounds like one transfer. The tax law sees several. Land is a CGT asset. Grain and standing crops are trading stock. Machinery sits under the depreciation rules. The $4 million land debt has to be traced to the asset it funded. A concession that solves one asset may do nothing for the next.
So the right first question is not which rollover is best. It is: what should move, who should own it afterwards, and which rule supports that result?
Haven't read Part 1?
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Follow the link below to start with the first article in the series.
Why the small business rollover is unavailable
Subdivision 328-G requires aggregated farm turnover to be under $10 million. Glenmore turns over about $13 million, so the rollover is unavailable, and the analysis ends there. A family-owned farm is not automatically a small business for tax purposes.
Even under $10 million, two conditions catch farm successions. The transaction must be a genuine restructure of an ongoing business, and the ultimate economic ownership must not materially change. On Glenmore’s intended facts, introducing Sarah as a substantial new economic owner at the time of transfer would require separate analysis and may prevent the ownership continuity requirement from being satisfied; there is a saving rule for movements within a family group under a family trust election, so the answer is fact-dependent rather than automatic.
The Commissioner reads succession-driven and sale-preparation restructures restrictively, and the rollover does nothing for GST, FBT or transfer duty.
Finding this out early prevents a family designing its succession plan around a rollover it cannot use.
Why Division 152 rarely fits an established commercial farm
A gain can be disregarded while the company still acquires the asset at market value, and the ownership rules are flexible enough to bring Sarah in immediately.
The gateway test to access the Small Business CGT concessions are the problem. The tests include a $2 million turnover threshold and a $6 million maximum net asset value. Against the asset and liability figures in Part 1’s facts box, the Calders are out by an order of magnitude.
The governments proposed increase in the $2m turnover threshold to $10m only applies to some of the exemptions. In practice, the increased turnover has not helped many businesses like they were made out to in the media.
Division 152 also deals only in capital gains. It does nothing for grain and crops taxed as trading stock, or for balancing adjustments on machinery. For most established commercial farms it explains what is unavailable rather than solving anything.
Why Division 122 remains relevant
Division 122 makes the sale of an asset to a wholly owned company tax-free. It has no turnover or asset value cap. It is the incorporation rollover built for exactly this move, and for businesses too large for the small business rules it is generally the only CGT rollover on the table.
Its discipline is ownership. Immediately after the transfer, the relevant transferor or transferors must hold the shares in the capacity and proportions the rollover requires. For the Calder trust as transferor, that means the trustee holds the shares at completion. Sarah can be a director and run the business from day one, but her equity comes later as a separate, separately analysed step. The answer also differs where property is transferred by an individual, joint owners or partners, so the transferor must be identified before the pathway is chosen.
Consideration is also controlled. It can be non-redeemable shares (so typically ordinary shares) plus the assumption of eligible liabilities, within statutory limits. The $4 million facility cannot move to the company merely because that is convenient; it is secured over land that is not moving at all. That again supports leaving the land, and its debt, with Mum and Dad.
How this looks in a Northam wheat operation
Take a broadacre grain business on the eastern side of Northam: 10,000 hectares cropped to wheat and canola, 20,000 tonnes produced in an average year, 8,000 tonnes of on-farm storage, and a header fleet with low tax written-down values. With the land retained, the immediate transfer problems are the grain on hand, the standing crop and the machinery, because grain is trading stock and machinery transfers trigger balancing adjustments. The rollover analysis above lands in the same place; the trading stock strategy in Part 3 matters even more.
The balancing adjustments on machinery are of more importance if the machinery has been fully depreciated under the Covid Temporary Full Expensing deductions.
The likely answer is deliberately mixed
If we circle back to the working structure for Glenmore: land and debt stays with Mum and Dad, who lease the farm to the company at market rent. Selected machinery rolls into the company with balancing adjustment relief where the Division 122 conditions are met, so depreciation continues unbroken. Financed equipment may be cheaper to leave in the trust and lease across, because payout costs, refinancing and duty can make a transfer commercially silly.
Grain and standing crops are the hard piece. Division 122 gives no shelter for trading stock moved outside the ordinary course of business. Grain carried at cost but worth $2.5 million produces assessable income on transfer with no outside buyer providing cash. Livestock is worse again. That problem has its own tools, and its own traps, in Part 3.
The commercial purpose must lead
One more test sits over the whole design. The commercial purposes should lead the design and be documented contemporaneously. Tax consequences can properly be considered, but the arrangement should not be entered into for the sole or dominant purpose of obtaining a tax benefit. The Calders’ reasons are commercial: retained capital for a growing business, management succession to Sarah, separation of land from trading risk, and a workable answer for Tom. Write those reasons down at the start, in the board papers and the adviser’s file, and make every document consistent with them.
Common questions
Aggregated turnover must be under $10 million. Many commercial farms fail this test before any other question is asked.
Rarely. The gateway tests include a $2 million turnover threshold and a $6 million maximum net asset value, and most established farming balance sheets sit well outside both.
Not on Glenmore’s proposed facts. Immediately after the transfer, the relevant transferor or transferors must hold the shares in the capacity and proportions required by the rollover. Bringing the next generation into ownership is a separate, later step.
The next step
Before a transfer agreement is drafted, ask Westcourt to model the pathways: an asset-by-asset schedule showing owner, tax value, market value, finance and destination, with the rollover, the tax cost and the duty position for each. Analysis comes before documents.
The Calder family and Glenmore are fictional and the figures are illustrative. This article is general information, not advice on your facts.
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