Why indeed ?
Why indeed would Australian farmers put their farms into self-managed superannuation funds?
The benefits are reduced taxation of farm profits. From what I have seen in a very long career of advising farmers on taxes and financial matters, there are so many tax concessions for farmers and seasonal conditions vary so much, that a lower tax rate is not their highest need.
Those saved taxes could be used for family holidays, dinners in town, off-farm investments, tertiary education for the children. Or it might be reinvested in the farm and fade into the background of it. It could build up substantial funds in the bank, clear the bank debt or buy new equipment.
Which do you think will be most likely to happen? Is that good or bad?
So what might be the downside.
The cost of paying for the self-managed super fund to be formed, documented and run by professional accountants or fund managers might be high. Lawyers to check out the legal implications may be expensive ands o may fees for it to be audited. That can be fairly big money to begin with and annually.
Then there is the fact that if farmers don’t pay reasonable taxes then we will not get decent schools, hospitals and roads in the bush or relief packages when droughts, bushfires and floods arrive.
Scrambled eggs!
You’ve heard of unscrambling eggs? For most farm families dealing with the accounting, tax and legal implications of a self-managed super fund when one wants to sell the farm can be daunting. When the next farmers want to actually own the land the farm is on, it can become costly. Or the farmer who set it up dies and the family fights over the estate assets, then some very expensive experts get involved in that unscrambling exercise. When it is all done and dusted the cost may just exceed the market value of the farm.
Double, double toil and trouble!
What self-managed superannuation funds and trusts often do when used for the farm ownership or operations, is cause more trouble than they are worth. One of my early professional Chartered Accountancy partners once remarked to me “ Never mind the tax. No matter how much tax you pay there will always be some profit left for you. Concentrate on making the profit, not reducing the tax.” After two significant farms I agree with him 100%.
When a self-funded superannuation fund is used for avoiding taxes on farm profits the farm may effectively move out of the absolute ownership and control of the farming family, to professionals.
I may be old-fashioned, but I have always wanted to be in complete control of my farms and businesses. If taxes were excessive I would try to find a better way of saving tax. They mostly aren’t for farmers with decent accountants.
Succession Planning
And on that subject I think there are a good few farmers in Australia being grossly over-charged for “farm succession” plans that stand every chance of causing massive disputes and perhaps legal arguments between family members after the death of the current generation. When I purchased my last farm from a relative with four daughters, we developed a very simple plan that worked very well for him and them as well as for me, over the next two decades. Simplicity is the best solution.