Western Australia has had an old-fashioned winter, which has meant something different for everyone.
Despite flood, low growing-season rainfall, frost, labour and contractor shortages, many farms will come out the other side with a good year after a wet winter and favourable conditions.
Many will have taken the opportunity to ‘make hay while the sun shines’ with record setting canola prices, low interest rates, and tax concessions for upgrading machinery.
Expanding on what Nathan discussed, maybe it is time to look more closely at some of that long-term debt, moving wealth off-farm in anticipation of succession planning, or expansion plans that have previously been postponed.
Minimising tax earlier this year may or may not have been difficult with a significant tax deduction for writing off machinery, under the revised accelerated small business depreciation concessions.
Unless there are new machinery and equipment purchases since 1 July, those tax deductions won’t be there to offset a record harvest.
So, is it a good time to buy that new header, ute, or boomspray with prices being driven by high demand and short supply, but still offering a great tax deduction?
That is the kind of question for your accountant.
Cash(flow) is king. Low interest rates won’t last forever, and it has never been cheaper to borrow money.
But will you be able to maintain repayments if rates go up? Is now a good time to reduce debt to build all important equity for the future, or put some away into a retirement fund or off-farm assets?
Minimising tax for the current financial year will require some early planning this year.
Thinking about your tax position now before going into harvest will particularly help you make clearer decisions about grain marketing in the future.
Postponing income and prepaying expenses to reduce profit will reduce tax now, but may also prevent access to cashflow.
Perhaps it is the right time to introduce a company into your trading structure to lower your average tax rate in 2021/22, and lock away less in Farm Management Deposits (FMDs) or wait for deferred sales to be received.
If you’re having a great year, it is inevitable that there will be some tax, so don’t spend it all now.
In summary, if you have been busy making hay while the sun has been shining then it is now time to get that hay to market.
We wish all producers a good harvest and a strong December quarter.
How can RSM help?
If you have any questions regarding your business cashflow or tax planning, in agribusiness or not, please get in touch with your local RSM office today.