Farming families require all of the same Financial Planning Services of any other families, however they also require specialised advice specific to their way of life, including:
Managing Uneven Cashflow & Profits
Farmers can incur good or bad years depending on the weather conditions and economic factors influencing the prices of their crops and livestock (such as foreign exchange prices, tariffs and consumer demand). It is therefore incumbent on farmers to save and make good financial decisions in good years to be able to be in a sound financial position to ride out bad years.
Farmers can also utilise:
Tax Averaging for Primary Producers - which allows farmers to even out the income and tax payable across 5 years, which often leads to a lower total tax level.
Farm Management Deposits - which allows farmers to make tax deductible deposits during years of good cash flow and withdraw them during bad years.
Managing Debt
Farmers will often have high levels of debt associated with the cost of land acquisitions. This debt needs to be clearly considered in terms of:
The short term servicing and ability to maintain positive cashflow
The longer-term financial modelling for confirming when the debts could be potentially paid down
Diversification
Given the sizeable value of many farms, many farming families have a very high portion of their total wealth in the value of their farm. Financial planners can help diversify their overall wealth which can help:
Manage uneven cashflow
Be more liquid (able to be sold down in smaller portions if required)
The client's overall tax position by investing in other potentially lower tax structures (such as superannuation)
Paying for Private School
Many farming families will either want or need to send their kids to private school and board there. These annual fees can be very significant and should be planned for many years in advance, rather than absorbed into the normal cashflow of the family, particularly as cashflow can be uneven.
Financial Planners will often create special education investment vehicles which receive tax concessions and allow clients to benefit from compounding returns at longer term growth rates.
Centrelink, Estate & Succession Planning
Estate planning for farming families is almost always complex. You may have multiple children who wish to carry on the farm or none.
If you have one child who wishes to carry on the farm, yet the farm represents well over their share of the inheritance split, strategies for estate equalisation are often required. This may include:
Setting up a life insurance policy to even out the split.
Splitting the title of the farm amongst the dependents.
Selling the entire farm, with a provision for the child who wishes to continue farming to continue contract farming for the new owners.
These decisions need to be made in conjunction with advice from a lawyer and accountant.
Farming families also need to be mindful of:
Their entitlement to use small business CGT concessions.
The capital gains tax and Centrelink Age Pension implications of farms over 2 hectares when sold or owned.
The purpose of this blog is to provide general information only and the contents of this website do not purport to provide personal financial advice. We strongly recommend that you consult with a lawyer, accountant and financial planner prior to making any financial decision. The contents of the our blog do not take into account the investment objectives, financial situation or particular needs of any person and should not be used as the basis for making any financial or other decisions. The information is selective and may not be complete or accurate for your particular purposes and should not be construed as a recommendation to invest in any particular product, investment or security. The information provided on this blog is given in good faith and is believed to be accurate at the time of compilation.
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