What Entity Should I Buy my Farm in?

While it might not seem important at the time, the choice of purchasing entity is critical when it comes to a succession event such as splitting the farm or transferring it to the next generation. It will also come into play when and if your farming property is sold.

A farm purchase is often entered into before you have had the chance to receive professional advice in relation to its terms and you only realise the matters that should have been addressed when a problem arises. 

Each farming business operation is different and should adopt a business structure that is appropriate for its unique situation.

Business structures may need to change over time in light of legislation, family circumstances, the degree of business growth and the external business operating environment. However, the cost of change is often significant, and the ideal is choosing a structure that will suit for a long period of time (subject to regular review).

These are our golden rules when purchasing farmland:

  1. Generally, trusts are our preferred vehicle for holding farmland. The main reason for this is the ability to transfer control of the trust to the next generation without incurring capital gains or duty.
  2. Don’t have the farmland in the same trust as your trading operations. It’s always better for asset protection to hold the land in a separate entity to that through which you trade.
  3. Buy any new farmland in a separate trust unless it’s a logical add on to land already held in another trust. The biggest mistake we see is all land being purchased in a single trust, but when it comes time to split this land (for instance between siblings) there is quite often a huge capital gains tax bill!
  4. Don’t hold “off-farm” assets in the same trust as farmland. At some point, you may wish to direct the off-farm assets to a different family member to the farmland. If they are held in the same trust this cannot be done without triggering capital gains tax or duty!

In general, the cost of setting up and running a couple of extra landholding trusts is insignificant compared to the capital gains tax and duty payable when it comes time to split the land down the track.

ALWAYS call your accountant & solicitor to discuss what entity to buy the land in prior to committing to an offer.

Understand that gone are that days where a 5 minute phone call is enough and a decision can be made on the spot. Using trusts, companies, and super funds requires time for establishment and careful consideration of the internal structures of such entities (eg. Appointer and Guardian).

To discuss further which entity to buy your next farm in please call The Money Edge on (07) 4151 8898 or email on mail@themoneyedge.com.au 

Disclaimer: This content provides general information only, current at the time of production. Any advice in it has been prepared without taking into account your personal circumstances. You should seek professional advice before acting on any material.

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