There are many ways dairy farm owners can move out of control and ownership of their farm business.

 

These can vary from appointing an employee or family member to hand over some responsibilities, engaging a share farmer, leasing or sale of the farm.

Each of these has varied implications for income which ultimately is the priority for people as they move out of work and into the next phase of their lives. For some it will be a chance to pursue another career or business opportunity which may mean that a complete sale of all stock and land is the priority. Alternatively it may be that they are approaching a phase of their lives where work is no longer a priority. They will need an income from the investment of their assets either still in the farm or elsewhere.

 

Keeping the farm

 

If the farm is kept, income may be generated from:

• wages;
• drawings;
• profits;
• director fees;
• share farming proceeds;
• converting the farm to another enterprise such as beef or heifer rearing;
• lease income;
• other investments;
• superannuation (download on pension streams from superannuation funds here);
• social security;
• family support.

The change involved in moving away from control and ownership is not simple and for many, the options are difficult to choose. This often results in a deferral of a decision which may have detrimental impact on those involved. Using the support of a trusted adviser, accountant, lawyer, facilitator or financial planner can assist with this process.

 

Additional issues to be considered in retirement include

 

• primary producer status;
• gifts to charity;
• roll over of capital assets;
• capital gains tax exemptions;
• social security;
• trust cloning;
• insurance;
• special disability trusts.

 

Taxation

 

There are a number of tax issues that need to be considered when a change of asset ownership is proposed. Livestock profit, stamp duty, capital gains tax (see below), fringe benefits tax, GST and gifting (see below) all have tax implications that need to be considered. Seeking appropriate professional advice is important to make sure that the right steps are taken to manage the tax liabilities.

 

Some of the tax issues for consideration

 

Primary producers

 

Primary producers can claim an exemption from stamp duty on the transfer of the family farm to a later generation. The rules are technical but reasonably generous. The amount of stamp duty that can be saved can be very substantial. It should be noted though that the exemption is NOT available to other forms of businesses even if they are transferred down the family tree.

 

Gifts to charity

 

If a gift of a capital asset to a charity is proposed, consideration should be given to doing so while still alive as some tax relief will be available as a gift deduction. If the gift is made in a will, the estate will be liable for capital gains tax on that asset as if it had been sold at market value.

 

Rollover of capital assets

 

If there are assets with substantial accrued taxable capital gains, it may be worth considering a rollover of those assets into a company and claiming the available rollover relief. The shares in the company, instead of the assets themselves, can then be left by will to the relevant beneficiary, thus postponing capital gains tax.

 

Capital gains tax exemptions

 

There are now a number of exemptions or discounts available to anyone selling out of a business or a share in a business. The rules are quite complex but well worth considering as it is possible for any capital gains tax bill to be very substantially reduced or even eliminated. The 2006 Federal Budget makes access to these concessions easier. Essentially the concessions available, if the pre-requisites for being a ‘small business’ can be met, are:

• 15-year exemption – a total exemption for a capital gain if the relevant asset was continuously owned for at least 15 years and the relevant individual is 55 years or over and retiring, or is permanently incapacitated.
• 50% active asset reduction – a 50% reduction of a capital gain.
• Retirement exemption – an exemption for capital gains up to a lifetime limit of $500,000. If the recipient is under 55 years, the amount must be paid into a superannuation (or similar) fund.
• Rollover – a deferral of a capital gain if a replacement asset is acquired.
• An immediate 50% discount for (nearly) all capital gains where the relevant asset was owned for at least 12 months.

 

Social security

 

Apart from being very complex, it also changes regularly. Specialist independent assistance should be obtained if social security is likely to be part of a retirement plan. In particular, some care must be exercised if both Centrelink and trusts are involved in plans.

 

Trust cloning

 

If a trust is involved in the structure, ‘cloning’ of that trust may be a useful way of achieving a
separation of trust assets without triggering adverse taxation or stamp duty consequences. This procedure is quite delicate and great care needs to be exercised