Structuring farm purchase

Discussion in 'Accounting & Tax' started by Tillie, 19th Jun, 2015.

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  1. Tillie

    Tillie Well-Known Member

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    Thanks Terry and Paul for your really insightful comments.

    As your both recommended I definitely will obtain professional advise after finding the suitable property to buy.

    I have to say that more and more I read your comments the more I realised that our tax system is not even meant to be understood by 'non tax professionals' . Maybe some simplification is required, but that requires it's own thread :p

    Allgood, are you deducting your primary production losses against your PAYG income or are you averaging losses and profits over 4 or other period? How many acres you have for 70 cattle?
     
    Last edited: 22nd Jun, 2015
  2. Allgood

    Allgood Well-Known Member

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    Hi Tillie,

    The tax laws regarding farms are way to complex for plebs like me but our accountant is all over the financial side of it, luckily!

    We deduct our losses of the whole farming enterprise (including interest) against my PAYG income each financial year. So last year the farm wrote off around $80,000 which had a huge impact (a good one!) on my taxable income. We only have 100 acres but we lease a place of about 400 acres, although 3/4 of the leased place is bush.

    Basically at the moment we have about 30 cows and 20 calves on our place and about 20 steers and heifers next door. When the cows calve (from September onwards) we'll ween their 20 current calves and put them next door with the steers and older heifers, and keep the cows and new calves on our place. Come say, next March, we'll sell last year's steers and heifers (that are currently next door) and keep this year's calves to grow out over there.

    If we didn't lease next door we would just have around 30 cows here and sell their calves when they're weened before the cows calve again. Leasing the neighbours allows us to grow them out and sell them for better $$.

    NB: It is very fertile down here so its a much better stocking rate than a lot of areas.
     
  3. Tillie

    Tillie Well-Known Member

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    Thanks Allgood,

    I agree with you. Tax laws in this area looks like ro be really complex, too complex for non tax professionals.

    Now we are going out off the original topic, but I'll ask anyway. How much time you (or someone) have to spend for land maintenance activities? E.g. Poisoning weeds, slashing crass, if any. Also do you have to provide supplement feeding for cattle?
     
  4. Allgood

    Allgood Well-Known Member

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    [QUOTE=" But from a land tax perspective it doesn't matter if it is your main source of income or not, what matters is what the land is primarily used for. You could still have a full time job but have the land primarily used for primary production.[/QUOTE]

    Agree with this - the primary deduction status is based on what the land is CURRENTLY used for. ie. If a farmer had a farm that was categories as primary producer then did nothing with that land for a period of time (years??) it is possible that it would lose it's PP status.
     
  5. Allgood

    Allgood Well-Known Member

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    Its a tricky one, its one of those things where you're always busy and never finished, but hard to break down where the time actually goes. It very much depends on the area and what the farm is like. ie my folks farm in NSW Central West was their primary source of income so it was very intensive. Lots of spraying weeds, moving irrigators, fertilising, making hay, planting etc. But where I am its much less full on. Basically I spend my time slashing and harrowing and fencing. Sure, I'm constantly walking around picking fireweed because I refuse to have in on our place, and theres blackberry spraying, cows to drench and move from paddock to paddock, troughs to fix, pumps to start, and so on, but not on a daily basis. Basically every week or so I tend to:
    - Move the cows, then try to harrow the paddock they were in, and depending on the time of year, try to slash it as well. That takes up most of my 'farm time' on the weekend. I also check the cows daily in calving time, before (and usually) after work.
    - I try to get to one other 'maintenance job' each weekend like set up an electric fence or depending on the time of year maybe get the cows in the yards to look them over, put rings on the bulls, drench them, or start the pump etc.
    - Pick fireweed when I'm walking the dog each morning which keeps that under control.
    - School holidays (Im a schoolie) I try to do the big ticket items like fencing, spraying weeds etc. We've just stepped out 1.5km of fencing that needs to be done so we're about to be busy doing that. It's going to be a biggie because its in hilly, bushy country not just flat and straight. Then there's heaps of areas of old fences that need to be repaired, new gates put on and old fences to be pulled down etc.
    - Most of the last holidays I was spraying bracken fern and blackberries so that once they die we can fertilise heavily and eventually put some rye grass and clover in - that will make a huge difference.
    -We're also leasing about 400 acres next door but I tend not to do too much maintenance to that. o_O
    - Summer is our best season here (unlike most places) because of the heavy rainfall. Winter is hardest because we're up in the mountains and the frost knocks it around. In previous years we've feed hay or silage but we're carrying less stock this year, because prices have been really good so we sold about 20 head extra. Hoping to make it through winter without feeding, although the frosts hit earlier this year so we'll see.
    - Then there's the non-farmie stuff that's associated with living on a farm, like cutting firewood, putting in new gardens, building chookpens, fixing the sheds. We've just started renovating the house and had a new driveway put in so that's keeping us busy. And lots of new gardens to keep the wife happy. We just finished a 65m post and rail fence across the front as well as a full length garden about 6 feet wide edged with sleepers all the way. About 200 mature plants in total, then mulched with chip bark, so that took months and wasn't farm related at all :mad:

    The farm has been in my family for 60 odd years and before dad died it was like a golf course but then for about 8 years it pretty much say idle so I've made it my mission to get it back to the weed-free, well fenced, productive place that it was. The last 3 years have been madness but we're doing it all ourself where a lot of our neighbours are city weekenders who pay workers to get things done so I think we're doing okay....

    For the record, in most areas people would look at 100 acres and say they had a backyard bigger than that!
     
    Terry_w likes this.
  6. Foxy Moron

    Foxy Moron Well-Known Member

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    Hi Tillie. I'm going to back Paul up on this and say you should definately explore further the use of your own SMSF for the acquisition of your primary production block. Please understand that being aged 40 you are exactly the type of person who can exploit some fantastic rules in this space, that normal folk dont get a crack at. Your eyes will pop when an expert in this field sits you down and walks you through a couple of tax-effective ways you can do this.....either with a super fund borrowing arrangement or with an ungeared unit trust or company, whereby over a number of years your SMSF loads up with tax-effective contributions and continues to acquires units or shares from the other part-owner (you). Get this structure right and you can be ten's of thousands better off than if you chose the easy road of not using your super. Wont bore you with further detail here other than to suggest that one hour with an expert in this area would be a darn good investment for you. PM me if you want some further details of the types of issues I think you should be getting tailored advice on.
    Cheers from the farm loving Fox.