What Entity Should I Buy the Next Farm in?

Article by Neil Hooper

as featured in the Farm Weekly issue 16 July 2020

Another 30 June has come and gone, and there has been a myriad of new rules for our clients (and ourselves) to get our heads around this year.

But for all these changes, some rules remain the same, especially in relation to what entities to hold your assets 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.

These are my golden rules when purchasing farmland:

  1. Generally, family 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 to discuss what entity to buy the land in prior to committing to an offer.

 

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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