Sharefarming | Am I still operating a Primary Production Business ?

Article by Ryan Naughton

as featured in the Farm Weekly issue 17 February 2022

WHEN it comes to dealing with the ATO most farmers are well aware that there are certain benefits that being in the business of primary production can provide them with.

These generally being but not limited to:
• Income Averaging benefits
• Ability to use and retain Farm Management Deposits
• More flexibility with regard to income splitting (versus leasing)
• Access to very favourable Capital Gains Tax Concessions

It is for this reason that many look to share farming agreements when their normal business operations either cease or are winding down. The idea being that entering into a share farming agreement will help retain many of the same concessional tax treatments that being in the business of farming provides.

Unfortunately, it is not that simple – Please be aware that the typical arrangement whereby the land owner takes a percentage cut of the profits made, is not going to be enough to satisfy the ATO that the landowner is in the business of farming.

Our research has shown that a legitimate share farming agreement would require the land owner to prove they have significant influence over most aspects of the farming operations as well as showing sufficient participation levels and production risk. 

Getting this wrong has the potential to be a very expensive exercise (FMDs 100% assessable, loss of CGT Concessions) and the devil is in the detail. 

If share farming appeals as a viable planning opportunity for your situation, please ensure you involve your tax advisor.  Have them review your situation and give yourself the best opportunity of being compliant with the ATO’s definition of being in business.

To discuss this article further, we encourage you to contact Ryan Naughton on (08) 9621 3200, or your Byfields accountant.

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.

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