With the steady consolidation of farms across Australia and the increasing pressure on efficiency, being growth-ready means formulating a strategy to suit your growth plans.
Here are three tips to ensure you have a growth-ready farm.
1. Review the structure of new machinery purchases
With the ever-increasing cost of machinery, the structure of a new machinery purchase or trade requires additional consideration. Often machinery is financed through chattel mortgage, however the ability to prepay expenses 12 months in advance for some farmers can provide significant up-front tax benefit through finance leases as opposed to chattel mortgage. With every purchase, tax shouldn’t be the main consideration. All factors should be carefully reviewed including the interest rates on offer and cash-flow considerations.
2. Understand how Farm Management Deposits (FMD) work
Many farmers often find themselves ‘stuck’ in a cycle of inflexible FMD deposits and withdrawals as an ongoing mechanism to mitigate tax. With additional input costs in the year of farm expansion, an FMD withdrawal can be used to offset additional expenditure and meet cash flow requirements. As an FMD can only be held in individual names, the withdrawal creates taxable income in the individual’s name. With the ability to hold up to $800,000 in an FMD, careful planning is needed to ensure the FMD in an individual’s name can be offset by the additional expenditure that may be incurred within a separate business structure.
3. Determine if you have the right structure
With significant uncertainty regarding tax law of late, it creates a difficult playing field for structuring your business.
Some key considerations in determining your structure include:
- Are you holding valuable assets at risk?
Agriculture is a high-risk industry on many fronts. Consider segregating operating risk from business assets.
- Is your structure minimising tax effectively?
Is it flexible with the volatile nature of farming? With recent changes to company and individual tax rates, this could be an opportune time to plan for the future.
- Consider the line of succession when looking at farm expansion.
Careful planning now can help avoid potential Capital Gains Tax and Transfer Duty implications later.
- Structure the contract right!
The conditions of a contract can provide an opportunity to obtain additional tax deductions on structural improvements the new farm may have. The $10m small business concessions currently allow for an immediate write off against assets costing less than $30,000, and generous rates against those over $30,000.
The key to implementing a successful growth-ready farm strategy is to plan ahead.
Seeking professional help in formulating a suitable tax plan ensures your overall equity and wealth position is maximised.
If you need further assistance regarding any topics around developing a growth-ready farm, please do not hesitate to get in contact with your local RSM Agribusiness expert >>