Fools rush in – choose your landholding entity carefully!

Article by Scott Smith

Congratulations! You are the highest bidder at the most recent auction and have been successful in purchasing a new farm. 

Now all you need to do is commit your first born to the bank, and with ever exploding land prices, possibly your second as well! 

Next step is which entity to use. This is a critical decision that will have future implications for succession planning, asset protection and tax. 

When deciding, ask yourself the following: 

  • Does it adjoin existing land, and which current entity owns that land? 

  • Is it large enough to justify its own entity – is it a ‘stand alone’ farm? 

  • Is this a generational asset, or will it be sold to fund retirement/succession? 

  • Will you farm it yourself or lease it out? 

  • What does your current trading structure look like? 

  • Have you used companies for tax planning in the past? 

  • How much do you have in superannuation? 

Responses to the above will then lead to one of the following entities: 

  • Trust 

  • Company 

  • Superannuation fund 

  • Personal names 

Often the entity may not tick all the boxes, but make sure you tick the ones that are most important to you. 

While every circumstance is different, some general rules: 

  • There usually needs to be a strong reason to not use a trust, 

  • Best practice is to have a company as trustee of the trust, 

  • Companies as landholding entities can have their place, 

  • In most circumstances a trust as the shareholder of a company is more appropriate than individual shareholders, 

  • Too much land in one entity can make succession planning difficult, 

  • A mixture of farm and off farm assets in the same entity is not ideal for succession planning, 

  • Avoid owning land in your farm trading entity for asset protection purposes, 

  • Generally rule out owning land in your personal and joint names, and 

  • Owning land in your super fund can be effective in some circumstances. 

Take the time to consider your landholding entity carefully. Consider all options and pick the one that is most appropriate for you. This will provide a high level of asset protection, streamline succession planning, and reduce capital gains tax and stamp duty. 

Talk to your Byfields accountant to determine the most appropriate purchase entity. 

Share this page

Explore The Latest News from Byfields