Farm Weekly | Investing Beyond the Farm Gate: What Farmers Need to Know

Article by Caitlin Riethmuller Byfields Associate

For many farming families, most of their wealth is tied up in land. While farmland can be an excellent long-term asset, it does not always provide reliable cash flow, particularly during poor seasons or when succession planning is approaching. 

As a result, more farmers are looking at off-farm investments to diversify income, manage risk and build wealth outside agriculture. Common options include superannuation, investment properties, share portfolios, managed funds, term deposits and private business ventures. 

While diversification can be a sensible strategy, off-farm investments come with tax considerations that are often overlooked. 

Some of the key tax issues include: 

• Off-farm income is generally treated as non-primary production income and is not eligible for income averaging. 

• Farm losses may not always be available to offset other income and can become trapped within the entity that incurred them. 

• Interest on investment borrowings may be deductible, but deductibility depends on how funds are used rather than what assets secure the loan. 

• Capital gains tax can apply on disposal, with many off-farm investments not qualifying for the small business CGT concessions available to active business assets. 

Off-farm investments can also be a valuable succession planning tool. Many farming families have significant wealth tied up in land, but land alone does not fund retirement. When the time comes to step back from the business, the outgoing generation may require income to cover living expenses, healthcare costs and potentially aged care expenses. Building assets outside the farm can provide financial security without requiring the next generation to take on excessive debt or sell productive farmland. 

Off-farm assets can also create greater flexibility when planning for children who are not involved in the farming business. Having wealth outside the farm may help achieve a more balanced outcome for all family members while preserving the farming enterprise for those continuing the operation. 

Equally important is deciding who owns the investment. Whether assets are held personally, through a company, trust or superannuation fund can significantly affect tax outcomes, asset protection and succession planning. 

Off-farm investments can strengthen a farming family's financial position and support successful succession outcomes. However, investment decisions should form part of a broader strategy that considers tax, business structures and long-term family objectives. Getting the structure right from the outset is often far easier and far less costly than trying to fix it later.  

Contact us at Byfields to discuss your long-term strategy and ensure a simple decision today sets your family up for success.