Off-farm family security

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Off-farm investments, such as urban real estate, can aid risk protection as well as wealth accumulation, business succession, and retirement and estate planning.

PHOTO: Brad Collis

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.

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Brian Wibberley

PHOTO: Tom McNab

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.

Grower case study

A farming business in the southern Victorian Mallee invested heavily in off-farm assets compared 
with their peers in the early 1990s through to the 2000s.

The couple were in their mid-20s when they started, and were spurred on by intergenerational change on the farm. They wanted to establish a situation where their three children could benefit, whether or not they were involved in the farming business.

The farm business commenced with good farm scale and so in the 1990s the couple chose to invest farm profits off-farm rather than in further farm expansion. This diversification into off-farm investments was achieved while maintaining a viable and successful farming business, resulting in:

  • doubling of family net worth over 20 years (average equity growth of $180,000 per year);
  • liquidity in off-farm assets to support the farm cash flow in poor seasons, and vice versa;
  • a manageable workload for the parents on-farm, reducing the need for employed labour; and
  • an opportunity for all family members to participate, complementing the business skills developed in farming.

In the first five years, their initial investments were less than $10,000 per year and were made in the share market. After five years, the annual contribution increased in good-farm-profit years and ranged from $0 in drought years to $50,000 in good years. All dividends received were reinvested.

At seven years, their share value had reached $320,000. A proportion ($100,000) was cashed and combined with a farm profit contribution of $50,000 to fund the deposit on a Melbourne residential property valued at $375,000 (37 per cent equity).

At 12 years, the net off-farm value – including annual contributions from farm profit and dividends reinvested – had grown to $800,000 (gross $1.2 million less debt $400,000). At 14 years, the non-leveraged assets (60 per cent of total, eligible business real estate property, listed equities and widely held trust assets) were transferred to a SMSF as part of the tax concessions offered as non-concessional contributions.

From 14 to 20 years, the investment portfolio grew to $2.4 million and included a diversified portfolio of shares, residential real estate and commercial real estate.

This strategy of off-farm investment:

  • involved all members of the farming family;
  • provided experience in other sectors and stimulated greater awareness, understanding and appreciation of the local and global economy;
  • provided financial security for the farm in poor seasons; and
  • leveraged the equity in the farm to fund some of the off-farm growth, resulting in efficient use of available equity.

One of the children chose to return to the farm in their late 20s. The farm business cashed in 30 per cent of the off-farm investments, mainly commercial and residential real estate and, in conjunction with leveraging existing farm land, was able to purchase land to double farm scale and upgrade farm machinery over five years. This established a viable pathway to continue farming with the next generation, while retaining financial security for all.

The parents chose to continue living on-farm and provide their labour during peak workload times. They also maintain an active interest in their off-farm investments, which will provide financial independence in their planned retirement. In addition, the off-farm investments will form the major part of their two non-farming children’s inheritance.

More information:

Brian Wibberley
08 8682 5222
0428 825 222


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