Off-farm family security
GroundCover™ Issue: 109 | 03 Mar 2014 | Author: ORM Communications
The winter crop is in the bin and growers are looking for ways to invest surplus income to expand, manage risk and diversify. Typically, expansion is associated with buying the property next door; however, in some instances it can be achieved by building scale outside the farm business.
Off-farm investments and the establishment of a self-managed superannuation fund (SMSF) are two strategies farming families should consider, says South Australian rural financial adviser and accountant Brian Wibberley.
Often, farming families have the vast majority of their assets tied up in agricultural land and the farm’s operating business.
This works if farm expansion is the key objective and retirement and succession planning have been accommodated.
However, for some, investing off-farm can diversify income sources, increase capital returns and reduce business risk.
Suitable off-farm investments include everything from investment in other businesses, through to real estate, shares and cash deposits. Mr Wibberley explains that off-farm investments can be effective for financial risk protection, as well as wealth accumulation, business succession, retirement and estate planning. They also provide flexibility for future plans and unexpected circumstances.
An off-farm investment strategy should integrate with:
- individual personal goals, dealing with wealth, estate and retirement planning;
- individual attitude to risk and business risk profiles;
- business goals, including succession planning; and
- future financial requirements, such as equipment and asset purchases.
“It is essential to accumulate non-farm investments and ensure they are owned and accumulated in the correct structure,” Mr Wibberley says. “Significant taxation advantages can be obtained using a well-structured SMSF or family trust structure.
“We advise all our clients, especially the younger ones, to buy a house using a simple home loan. Renting out and negative gearing the property during their working career can be a useful way to save tax, accumulate concessionally taxed wealth and provide for eventual retirement accommodation.”
Mr Wibberley explains that in the event his clients intend to hand the farm over to the next generation, they need to think about retirement accommodation. This could be a house, semi-dependent unit or a nursing home. “These days, few people end up dying on the farm and retirement accommodation can become a major cost to farming families.”
The issue of accommodation after retirement can be easily managed, and the purchase can also be used as a risk-management tool, adding further high-quality financial security to the balance sheet.
When it comes to equities and business real estate, Mr Wibberley says a SMSF can be used to accumulate wealth to fund retirement and save thousands of dollars in tax. He says that SMSFs also provide an excellent flexible structure to assist with handing over wealth from one generation to the next, particularly when there are farming and non-farming children.
“One of the most incredible features of a SMSF is the ability for older generations to be paid a concessionally taxed income stream from the fund. Super fund investment income, along with their personal pension income, can be tax free after they reach the age of 60.
“Including a few listed equities that pay fully franked dividends, along with the ability to transfer these shares to your SMSF as a tax deduction in high-income years, provides a great way to accumulate wealth and solve a whole range of potential issues in the future,” Mr Wibberley says.
Mr Wibberley reiterates that these issues are faced by all multi-generational farming families and can be easily tackled with a good off-farm investment plan and the right advice. A qualified financial adviser can help develop a strategic plan that meets a grower’s needs, risk profile and aspirations for wealth generation.
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