With South Australia’s 2014 winter grain crop above the 10 year average at 7.63MT, many growers are receiving solid harvest incomes.
This result on the back of a very solid 2013-14 year, careful planning and management of harvest income should enable most growers to achieve a number of financial goals.
To ensure you make the most of this opportunity, some key areas of focus should include:
1. Debt reduction
Every harvest profit provides an opportunity to pay down debt. However, debt repayments need to be balanced with tax effective reinvestment in the business, and tax effective diversification. Debt reduction should target non-deductible debt and expensive debt first. With a reduction in debt levels, business owners should reconsider their security positions, whilst not wanting to limit their future growth opportunities.
2. Build your superannuation
Making concessional contributions to superannuation can enable you to reduce taxable income and increase off-farm assets. This also assists with succession planning and exit strategies for your farm. You should maximise the number of family members making concessional contributions, particularly for those aged 60 and over or who have higher concessional caps.
An increase in the popularity of SMSFs over the last decade has provided primary producers with alternative options in respect of the utilisation of superannuation entitlements and also a tax effective way to hold business assets like farmland.
3. Off-farm diversification
Directing surplus profit into diversified investments outside of the agriculture industry is an effective strategy to manage risk. This can be done via self-managed superannuation funds and family trusts, into assets such as shares, property or other business opportunities.
4. Farm management deposits
Farm Management Deposits are a risk management tool to help farmers deal with uneven income years. They provide a very effective way of deferring assessable income to a later and possibly lower income year. This enables you to lower your taxable income, particularly if you’ve had a strong year.
5. Reinvest back into the business
Purchasing new business assets, such as plant and equipment (P&E) like farm machinery, is another way to realise some tax benefits. However, because of the lasting nature of P&E, these deductions are usually claimed over a period of years.
There are opportunities for growers to optimise their tax position by adopting the simplified depreciation rules (assuming you are a small business entity).
For more information please contact Agribusiness Specialist Ben Trengove at William Buck Chartered Accountants and Advisors on 08 8409 4333 or email at firstname.lastname@example.org