Bad years on the farm are hard to take, but there are often enormous opportunities for positive outcomes in the area of tax planning and succession planning that can be of huge benefit to the farm’s future.

No doubt variable weather throughout Wheatbelt WA shall deliver a wide range of harvest results… but that should not mean farmers ignore tax and succession planning options.

There are farmers who have missed out on rainfall and are likely to have very low incomes and suffer substantial financial setbacks. 

But let’s not dwell on the negatives. 

Opportunity may arise on the succession planning side. Small business capital gains tax concessions only work if your turnover is under $2,000,000 or your net business wealth is under $6,000,000. A poor year may put farmers in this picture (where they may not otherwise have been) allowing the movement of farmland between generations with potentially no capital gains tax. ​​

On the income tax side of things, cash in farm management deposits (FMD) may be withdrawn with little tax impact. If farmers have a company structure that has paid tax, there may be the possibility of paying out dividends to family members to offset farm losses and receive a substantial refund of dividend imputation credits (great for cash flow). There is also important planning to ensure, that while farmers may not pay tax this year, they position themselves to obtain maximum tax benefit when they return to a taxable profit next year. ​succession planning

At the other end of the farming profit spectrum, high yields and reasonable grain prices translate into potential high incomes and large tax bills. There are FMDs, superannuation, and lower company tax rates (27.5%) that may alleviate a tax problem. 

More important right now is to review grain selling plans and the timing of those grain sales. Grain held and sold after 30 June 2018 could defer substantial taxable income and reduce tax. Grain pools also help the tax position as grain advances only become taxable when received and, for some pools, this could mean over 75% of the value of the grain is taxed in the following tax year. 

A better than expected income should also lead to a review of the family succession plan. A better financial position could encourage some plans to be brought forward or altered to suit the better financial circumstances. 

One thing is for certain, careful planning is essential to maximise the benefits of every financial situation, no matter what that situation might be. 

For more information, please contact Geoff Hall who is a specialist in farm business tax and succession planning at RSM Australia. Alternatively, find your local RSM office here. 

FMDs - do you have a plan? >>