ARE YOU PAYING TOO MUCH TAX?

To minimize tax its absolutely essential that at the end of the farm season and BEFORE the end of the financial year you and your Accountant plan for the best possible tax outcome.
Your accountant should be actively helping you each year to minimize your tax each year. Tax planning between March and June is essential. If your accountant is not doing this please speak to us.
Here’s a few broad comments that we hope will get you thinking. Are you doing all you can to minimize your farm taxation?
At this point we must stress that no one strategy fits all clients and everyone’s situation is different. Don’t necessarily compare what your farmer friends are doing as that may not suit your farm business or family. Better to seek trusted advice from Accountants who specialize in this area.
Here’s 5 things that may help to reduce your farm tax.
1.IS YOUR FARM BUSINESS ENTITY STRUCTURED TAX EFFECTIVELY?
Should you stick with the old family partnership? Are you missing out not having a family trust? What about companies with their low tax rates? Which is the best structure for you.
There is no doubt we favor family trusts due to the significant tax and estate planning opportunities. Often its beneficial to have two separate trusts, one for the business and one for the land. We are also seeing the use of corporate beneficiaries to assist in smoothing out income in high years.
If your confused by how a trust works then talk to us at Farm Accountants WA. We can explain them nice and simply and help you manage the compliance each year.
2. GET THE BASICS RIGHT
The starting point for good farm tax planning is to get the well-known basics right. Here’s a few of them:
- Are you taking advantage of the small business entity special rules?
- Make sure you are maximizing tax averaging rules for the whole family. This smooths out tax payable by keeping eligible family members incomes similar. We have noticed that many overlook this.
- Defer recognition of income.
- Value stock correctly
- Bring forward expenses wherever possible
- Write off capital expenditure correctly
No rocket science here. However, make sure you get the fundamentals of tax planning spot on.
3.EQUIPMENT REPLACEMENT
Be very careful when replacing equipment purchase using the recent asset write off rules. There could be a nasty tax surprise.
Should you buy or lease or finance your farm equipment? Should you use your corporate beneficiary of a trust to buy the equipment? Or you super?
4.FARM MANAGEMENT DEPOSITS – ONE OF THE BEST TOOLS IN YOUR SHED
The objective of these is to allow you to better manage your cash flow through good and bad years by keeping cash reserves and smoothing out the level of income to avoid tax spikes.
Managed correctly and in conjunction with superannuation contributions and judicious equipment purchases, FMD’s are very effective at minimizing farm tax and securing your farms long term financial viability. Plus, they are a great way of funding your retirement.
5.ARE YOU MAKING SUPERANNUATION CONTRIBUTIONS?
Superannuation for farmers should be essential. If done properly it means that one generation can hand over to the next without creating a financial burden.
The sooner each family member starts the better, even if it begins with modest contributions. They will soon add up. Plus, they provide a great tax deduction and any money in super after age 60 can be tax free.
If you have a self-managed fund then well done! With some proviso’s these can help with:
- acquiring farm land
- funding for non-farming children
- build a portfolio of valuable off farm assets
- return funds tax effectively to pay off farm debt
IF YOU WOULD LIKE HELP TO PAY LESS TAX, PLEASE TALK TO US AT FARM ACCOUNTANTS WA