Farm Purchase Due Diligence Checklist
Purchasing rural property? Don’t forget your due diligence!
Performing due diligence is a necessary step involved in buying or investing money into farmland or any agriculture business. The process serves to validate the details and information given by the vendor or investment partner. It also helps to ensure your decisions are made with full knowledge of any and all issues, risks, or other potential outcomes.
As a minimum, we recommend you complete the following:
Investigate the status of the land
Is the land freehold or is it land leased by the crown? If leased by the crown, it is beneficial to review the terms.
Find out what is included with the land
Rural property often comes with inclusions e.g., plant & equipment , crops, water entitlements/rights, paddock records, licences, livestock and other interests. Make a list of inclusions and investigate if anything needs to be renewed, replaced, or removed all together.
Make time to complete financing arrangement
Be aware of timeframes. It is great to have that quick sale and set a quick settlement date, however some financial institutions can take longer to approve loans. Time is also needed to discuss security arrangements, discuss interest rates and repayment terms. You need to take your time to ensure you get the best deal for your situation.
Look into what land tax will you need to pay
Are you eligible to claim primary production land tax exemption? If the land is held either directly or indirectly by public companies or foreign companies, you will not be eligible. Examining this question will help you understand your likely land tax position. Obtain an independent valuation One of the smartest things you can do is get the property valued. This will more than likely be done by your financial institution if borrowing, however before price negotiations it is best to know what it is worth from an independent valuer.
GST and extra stamp duty
Advice should be sought in order to ensure the GST implications of any proposed acquisition are properly identified and any exemptions or concessions properly claimed. If GST exemptions are claimable then this has the benefit of potentially reducing stamp duty, which is payable on the GST inclusive purchase price. Most rural property transactions can be structured to include at least some GST-free supplies, for instance supplies of going concerns, water and/or farmland.
Foreign resident’s capital gains withholding
If the purchase price of the land is $2,000,000 or more, provision will need to be made in the contract for the seller to obtain a clearance certificate from the Australian Tax Office (ATO), which indicates the ATO is satisfied the seller is an Australian resident. If a clearance certificate is not provided to the purchaser at or before settlement, then the purchaser is obliged to withhold 10% on payments otherwise payable to the seller and pay that amount to the ATO.
FIRB requirements have changed significantly in the last 12 months, and can be easily triggered. For example, a 20% ownership interests held by non residents of a company (directly or indirectly) will trigger FIRB approval. If FIRB approval is required then there are different requirements depending on whether agricultural land or an agribusiness is being acquired. Seeking advice to understand FIRB requirements prior to signing any contract is essential to ensure implications are understood and if possible appropriately managed.
Soil & water tests
Soil & water testing provides a farm management tool with a potential benefit to the farmer of increased yields, reduced operating costs and risk management.
Not sure where to go next? Can we help you? This is just small list of recommendations. With two decades in the industry, The Money Edge can help you protect your interest. We can perform a due diligence as needed. Contact us to discuss how we can help you.
The Money Edge | Bundaberg