A critical year for farm businesses
17 May 2017
By Suncorp’s Head of Business Customers, John Debenham
Over the past twelve months, Australian farmers have reaped a bumper harvest in most areas of the country, leading to a forecast of record farm income in 2016/17 of $64 billion. The winter crop was up by almost 50 per cent, beef prices have doubled in the last three years – the best since the 1970s – and sheep returns, wool and meat are the highest in over 20 years.
These ‘record incomes’ only occur two or three times in a farming lifetime, so capturing this wealth and achieving long-term family objectives is critical during these unique years.
The question is, how do farming families capitalise on this? It requires clear thinking and long-term planning by the owners of the farm business and a thorough assessment of their priorities. For instance, does the family use the surplus to strengthen the farm balance sheet and ensure long-term viability? Is it best to reduce debt or invest ‘on farm’ to improve farm productivity? Should expansion of the farm be considered to gain greater scale and spread overhead costs? Is investing off-farm an option to provide flexibility for retirement and non-farming family members?
The answers to these questions will depend on farm productivity, equity levels, current land values and family objectives.
It’s also a timely opportunity to consider succession planning. All farming businesses face significant challenges with farm succession. These includes retaining a viable farm without too much debt, providing fairly for non-farming children and other family members, and enabling the older generation to retire or semi-retire with financial independence,
Changes made late last year to the Farm Management Deposits Account legislation provide an additional consideration.
Each member of a farm partnership is now eligible to lodge up to $800,000 in FMDAs, double the previous maximum of $400,000.
A farming partnership of four can now lodge up to $3.2 million in an approved FMDA, which is quarantined from tax until withdrawn. This provides significant advantages for managing seasonal fluctuations, building long-term viability and assisting succession plans.
Spontaneous purchase of land or farm machinery because of an ‘anticipated’ tax liability is a mistake made all too often. We would urge customers to consult a trusted financial advisor and accountant in farm tax planning to develop the best possible financial plan as we head towards the end of the current tax year. If considering an FMDA, now is the time to speak to your Agribusiness Manager, with market leading rates available in the lead up to June 30.
Media Contact: Alexandra Foley 0419 794 294