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The high cost of exiting

Indirect costs of many thousands of dollars could discourage irrigators from applying for a $150,000 exit grant.

The Prime Minister announced over the weekend that irrigators with properties of 15 hectares or less may qualify for a $150,000 exit grant, provided they sell their water entitlement to the government.

The scheme replaces a similar arrangement introduced by the former government, which has not been successful because it stipulated the sale of properties. Many applications were rejected because property sales in depressed market conditions were clearly difficult to achieve.

While the proposed new scheme doesn’t commit irrigators to also selling their property, they will need to consider factors such as liability for exit or termination fees charged by water authorities and whether capital gains tax applies.

“Exit fees vary between irrigation districts, but a 10 hectare vineyard with water rights of 90 megalitres in the Victorian Murray Valley could be liable for more than $30,000. And capital gains tax introduced in September 1985 could apply on a portion of the profit deemed to have been generated by the sale of water,” says Murray Valley Winegrowers CEO Mike Stone.

“The question of retrospectivity also arises in that irrigators who previously had applications for exit grants rejected because properties had not been sold, but who may have sold their water since, should still qualify for the new grant.”

Mike Stone says a downside of the weekend announcement is lack of detail regarding eligibility conditions and the process of selling water entitlements to the government.

“We understand that in applying for the grant irrigators will also tender a sale price for water entitlements, which might or might not be accepted. We assume the grant will go only to those irrigators who have submitted offers that are acceptable to the government.”

The MVW CEO also believes the new scheme should apply to properties of more than 15 hectares, saying it was a fallacy that only growers with small properties were desperate to exit.

He also says a regional-wide system of tracking exit grant applications and approvals was needed to assist in the planning and management of industry sectors.

ENQUIRIES: Mike Stone — 03 5021 3911 / 0439 037 278

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