Tax planning: Imperative for agribusinesses

Tax planning is important in most industries to ensure businesses minimise tax and maximise wealth. It is incredibly imperative for agribusinesses, as these businesses and their individuals have access to tax-saving opportunities not available to everyone.

It always makes good financial sense to plan ahead to make the most of the available tax savings.

Removal of the temporary full expensing

As discussed in our earlier article, "Temporary full expensing: Beware of the sting in the tail", the removal of the temporary full expensing, and replacement of the now announced $30,000 small business immediate write-off, could cause a significant increase in the taxable income of your enterprise.

Agribusinesses must consider the impact of any assets or equipment traded in or sold during the financial year.

Future changes in tax rates

Stage 3 tax cuts, although changed from their original form, also need to be considered when looking at the current year's tax. All individuals whose personal income exceeds $18,200 receive a tax reduction in the following financial year. Therefore, expenditure incurred or Farm Management Deposits (FMDs) taken out this year could have a more significant tax saving this year, rather than if incurred next year.

A change in tax rates also brings a change in the primary production averaging rates, which needs to be considered when forecasting the current year.

Prepayment of expenditure

Primary producers can look to prepay expenditures to bring forward tax deductions. The main prepayments of expenditure are agriculture supplies, loan interest, and leases.

However, this can be a balancing act for agribusinesses as prepaying expenditure can potentially deliver tax savings, yet, when applied to interest, the rate needs to be fixed to action a prepayment and therefore, your interest rate doesn't fluctuate with any RBA movement. With agricultural supplies, you can be locked in with that supplier, which may diminish your ability to access price comparison advantages.

All of these must be considered carefully to ensure that prepaying expenditure does not drain cash reserves that could be used to take advantage of other opportunities through the following financial year. 

Other tax savings strategies include:

Farm Management Deposits

Investing in FMDs can help individual primary producers reduce fluctuations in taxable earnings caused by economic and seasonal changes to primary production income. They are a reduction in an individual's primary production income in the year they are taken out and primary production income in the financial year they are withdrawn. However, these must be held for at least 12 months; otherwise, the tax benefit of investing in an FMD will not be retained. Although interest is paid on such FMDs, this is assessable income to the individual to which the account is in the name of. There is also a maximum limit for deposits of $800,000 per person. 

Superannuation Contributions 

You could look to maximise superannuation deductions before 30 June 2024, head to our superannuation article for all the information.

"The end of the financial year is always a valuable time to review estate and succession plans."

Looking at the bigger picture

Tax-driven measures implemented by an agribusiness should be viewed through the lens of succession planning. This is often an incredibly complex area for farmers.

By their nature, family farming businesses involve close personal connections. Conversations around succession planning can be emotional, especially as some members of the next generation will run the farm, others will not, and the 'retiring' generation will likely retain a decisive say and interest in the 

business.

The end of the financial year is always a valuable time to review estate and succession plans – which can cue a rethink of the way the agribusiness is structured. The main point is that tax planning strategies can and should feed into succession plans. Having a professional third party, such as your Brentnalls SA agribusiness specialist, engage in these conversations can be a wise investment for the future.

The time to plan is now

With the end of the financial year fast approaching, agribusinesses have a window of opportunity to take advantage of these tax strategies prior to 30 June.

As part of Brentnalls tax planning service, we can do the following:

• Review expected annual results, 
• Look at the strategic options available to you, 
• Meet with you before the end of the financial year,
• Ensure you can maximise the opportunities available to you; and
• Make sure the business and family group entity structure are fit for purpose. 

Call our team today to discuss end of year tax planning. It can set your agribusiness up for the following financial year, backed by the possible benefit of valuable tax savings. 

Disclaimer

The information provided in this article does not constitute advice. The information is of a general nature only and does not take into account your individual financial situation. It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you contact Brentnalls SA before making any decision to discuss your particular requirements or circumstances.