Home' SMSF Professionals Association of Australia : SPAA Yearbook 2013 Contents 42.SPAA.2013
FARMERS AND SMSFs
Faulkner says farmers often make
more money from subdividing their
land for residential blocks or small
farmlets than from agribusiness. "I'd
like to eventually have 500 acres,
break it into 100-acre blocks, and
potentially make a good capital gain. I
couldn't access that capital gain if it is
locked in super until retirement."
Dixon Advisory head of nancial
planning Nerida Cole says putting
farmland into an SMSF can be
"advantageous in the right
circumstances," but cautions farmers
on having too much super based on
farm assets. "Farms can be hard to sell
and to lease, as there may only be a
narrow group of parties interested
in using the land for a pro table
venture. As a result, they are generally
'lumpy' assets with very restricted
liquidity. As with any SMSF strategy,
you must ensure that the fund is -- or
can be -- appropriately diversi ed, and
provides su cient retirement income."
Cole has advised rural clients
through Dixon's Canberra and
Melbourne o ce, and her family is in
farming. "You need careful long-term
planning before putting a farm in an
SMSF. You'd have to think beyond 10
years, knowing you are comfortable
with the SMSF owning the farmland
for a long time, and consider the
stability and business skill of the
Cole adds: "If you or your family are
going to continue to run the farm,
you've got to satisfy the investment
rules in relation to business real
property, while also making sure
that the investment is sound from
the SMSF's point of view. The farm
business must be able to generate
strong sustainable levels of income,
so that lessees can meet the ongoing
lease payments to the fund. I'd also
suggest planning this strategy at least
a year or two in advance, and seeking
specialist advice before you went
ahead with it."
Cole says farmers should discuss the
SMSF strategy with family members.
"What happens if the kids lease the
farm, drought strikes, and they can
no longer pay the lease? As the whole
arrangement must be on commercial
terms, the SMSF would have to
enforce the lease agreement so the
kids would probably have to pay
penalties or eventually give up the
lease. It can get messy."
Farmers should be well insured
before using this strategy, particularly
where debt is involved, says Cole. "You
must be able to pay the lease and
therefore contribute income to the
SMSF. If you are injured or disabled
through work, or a partner dies,
your ability to continue running the
business could be impacted. Farming
has one of the highest rates of
workplace accidents in Australia."
Tony Featherstone is a former
managing editor of BRW and Shares
RSM Bird Cameron's Jarrad Turnbull provided this summary of key bene ts
and traps to consider when owning farmland in an SMSF:
Rent payments made to the fund by the farm are fully tax-deductible;
however, the SMSF only pays tax at 15 per cent on the rent income. If
the members are taking pensions from the fund, then the SMSF pays no
tax at all on the rent.
The super fund must collect rent at market value on the property that
can provide a secure and stable retirement income for the members.
An SMSF o ers e ective asset protection.
If the farmland is sold, no capital gains tax will be payable if the
members are taking pensions. Land can generally be transferred to an
SMSF without stamp duty, and quite often free of any capital gains tax.
Tips and traps
Land that is mortgaged cannot be owned by an SMSF, so any
mortgages on the property need to be discharged before being
transferred to the fund. Additionally, property owned by the fund
cannot be used as security for any future farm borrowings.
Any contributions of farmland made to the fund must be made within
your superannuation contribution limits. Depending on your age and
personal circumstances, it may be possible to make a contribution
of anywhere between $150,000 and $1.3 million of farmland (per
member) in one nancial year.
It is also now possible for the super fund to borrow money to acquire
new farming land.
Farmers who wish to pass the property to the next generation may face
di culties and costs if the proper planning is not undertaken upfront.
When a member passes away, their super balance (including farmland)
may need to be transferred out of the fund, potentially resulting in
capital gains tax and the so-called "death tax". The proper planning will
go a long way towards alleviating these issues.
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