We find ourselves in uncertain health and economic times, involving amongst other things highs and lows in terms of pandemic viruses, political standings, severe droughts and floods, high cattle and commodity prices, and continued high land values, all of which affect the back bone of our great country, the primary producer.
Even prior to the pandemic of COVID-19 we were seeing an unprecedented transfer of wealth through the baby boomer generation and changes in attitudes of both younger and older generations in terms of their succession planning, with a recognition that the older generations have a desire to retire comfortably, while the younger generation wants to seize the opportunity.
These ‘generations’ of families (many of them primary producers) are looking to undertake their succession planning sooner rather than later.
Regardless of the times we find ourselves in, however, succession planning is a critical topic for primary producers. Often the biggest hurdle for any succession plan (besides getting all relevant parties to the table to commence discussions) is the initial determination of:
- who should receive certain assets?
- will the transfer of those assets carry with them a tax or duty liability?
Planning for an exit event
We see every day the benefits of implementing a strong succession plan and have no doubt that it ensures a smooth transition of an agribusiness when thrust upon a family by virtue of a family member:
- losing capacity, or
- passing away,
(all are considered exit events).
Particularly given the current COVID-19 climate, these are all things that should be considered and plans put in place to make sure that you, your family and your family business are well equipped for any unintended exit event.
Common competing considerations
Generally, the main competing considerations for implementing a succession plan are finding a balance between the desire to:
- provide for the family appropriately, while providing for appropriate succession of control of the business;
- give effect to any change of control in a tax effective way;
- provide asset protection to the next generation operators;
- ensure that the business remains in the family; and
- protect against litigation or other risks to the successful implementation of the succession plan.
Tax and duty consequences
As mentioned above in being one of the most important considerations, it is critical that tax and duty consequences of transferring any assets are considered.
Practically, the most tax effective timing of the transfer of assets can be determined and as we know, this often determines whether a family is willing to transfer an asset now, or whether the assets should instead pass under a Will (if, for example, the income tax and/or duty effects are too large).
We know that, generally, assets of a primary production business are treated as a special class – and it is preferable to take advantage of these opportunities as part of any succession plan. These concessions are often designed to provide an opportunity for the family farm to be maintained through generations, without the burden of taxes.
There are extraordinary opportunities for primary producers to take advantage of tax and duty concessions as part of their succession (and retirement) planning including:
- the CGT small business concessions; and
- the abolition of stamp duty on the transfer of agribusiness property (including water licences) where the property is intended to pass between relatives.
Why should primary producers consider transferring assets during their lifetime?
By transferring the family farm prior to death ‘mum and dad’ can be confident that, beyond their lifetime, the structure of the business and their future plans for the business will be maintained without certain estate litigation risks.
However, there are still circumstances where delaying the transfer of assets until death may be in the transferor’s interest, as assets passed via a Will are also privy to a number of full tax concessions which may not be on offer if transferred prior to death, such that holding the assets until death may be the more attractive option. For instance, when you die, an asset can be transferred to a beneficiary without triggering a CGT liability.
About Frances Becker
Frances acts for privately owned businesses, families, and high net worth individuals advising on estate planning and asset protection, business succession planning and general tax and commercial transactions.
She has a passion for assisting and advising rural and regional private clients and has personal and practical agribusiness experience in rural enterprises, having been born and bred in Rockhampton in Central Queensland
Frances was recently awarded a Rising Star award for 2019 by Doyle’s Guide for Succession Planning throughout Australia. Contact Frances on (07) 3233 or at [email protected] with any queries.