WORKING FOR THOSE ON THE LAND

Powers has been working with rural clients since 1968 and we have an understanding of the ever-changing landscape of Agribusiness that is second to none.

Powers have been working with the Primary Production industry for almost 50 years and we have unique experience to help support Australian agribusiness.. As one of the largest providers of rural services in Central Queensland, we work with clients across the broad spectrum of Australian agriculture, from family owned and operated farms through to large publicly traded agribusinesses.

The agribusiness industry poses a very unique set of business challenges and demands. Unpredictable cash flows, uncertainty of the weather and seasonal considerations are all factors that require a particular approach to proper business planning. Powers’ Agribusiness and Finance Division offers targeted and informed agribusiness advice across rural Queensland.

At Powers we offer practical accounting and financial advice to help our rural clients make the right decisions today, setting in place the right structures for future succession and focusing on minimising the risks of this volatile industry.

A large proportion of our client base is directly involved in Primary Production, as well as the support industries that go with this sector. These include: beef and dairy cattle, sheep and wool, pork, poultry, crops, horticulture and equine industries.

Why choose Powers?

Relationships are what we value most. We have ridden the rollercoaster with our agribusiness clients, helping them ride the low points and make the most of their high points. We have always been a country firm with a city office, rather than a city firm with regional office, a history we are very proud of and will strive to continue well into the future.

We understand the range of issues that impact on a farming business and we can help you understand the financial implications of a many decisions that may need to be made.

Our experienced advisors can evaluate your assets, business and trust structure, investment portfolios and look at ways to reduce tax payments.

How we help you

Our experience and expertise in the rural economy is focused on the following areas:

  • Specialist knowledge of rural accounting and taxation issues
  • Tax planning and how best to take advantage of Farm Management Deposits and other tax saving strategies
  • Rural business cash flow forecasts and budgets
  • Annual rural business compliance requirements
  • Audit of financial statements
  • Rural business activity and income activity statements
  • Preparation of reports for banks and financiers

Our full range of industry-specific solutions includes:

  • Practical advice for each phase of your business life cycle
  • Performance management tools
  • Developing business plans
  • Restructure of family businesses
  • Succession planning
  • Investment & funding advice
  • Self-managed superannuation
  • Liaison with QRAA, Centrelink, and government bodies regarding grants and benefits

HOW POWERS HELP PRIMARY PRODUCERS

ESTATE PLANNING

ENSURE THAT YOUR LEGACY GOES ON

Estate planning ensures you enjoy the benefits of your assets now and provides for your beneficiaries effectively in the future.

Our services assist you to manage your assets and your wealth across the generations in the most tax effective and risk managed manner.

Estate planning is not just about death and wills – it is about the protection and distribution of assets in both your lifetime and after death.

Powers have saved many families the unnecessary costs of poorly structured affairs. Of greatest value is the opportunity to engage in authentic communication with your family around your wishes, which is indisputably the best method to prevent disputes.

But if you want your assets, including your farming operation, to be distributed according to your wishes, it is important to put in place an estate plan before it is too late.

Not just about death and Wills

Your Will is an important part of you estate planning; however it’s not the only part.

Creating a Will gives you sole discretion over the distribution of your assets. It lets you decide how your belongings, such as cars or family heirlooms, should be distributed. Your will can direct the smooth transition of your business assets. In the context of a family farming operation, keeping your Will maintained and updated is extremely important and will ensure the risk of family disputes and breakdown of relationships are minimized.

Estate planning is about your protecting assets and ensuring they get to the right people in the most tax effective way.

It’s advisable that your Will is completed by a qualified advisor, as they’ll be able to provide strategies to ensure your assets are distributed in the most tax effective manner.

Have adequate insurance

Making sure you have enough insurance to provide for your dependants is also a critical part of estate planning.

This is particularly so for younger people who are still accumulating assets and have considerable debt.

Providing your family with a long-term cover for the loss of your income can be essential, as well as providing immediate relief for costs such as funeral expenses. It will also provide peace of mind for you knowing that if something happens, your family will be financially secure.

Appoint a power of attorney

Appointing someone as your power of attorney gives them the legal authority to look after your affairs on your behalf.

Powers of attorney can refer to just financial powers, or they might include broader guardianship powers.

Generally speaking, there are different types of power of attorney:

  • A general power of attorney is where you appoint someone to make financial and legal decisions for you, usually for a specified period of time, for example if you're overseas and unable to manage your legal affairs at home. This person's appointment becomes invalid if you lose the capacity to make decisions for yourself.
  • An enduring power of attorney is where you appoint a person to make financial and legal decisions for you if you lose the capacity to make your own decisions.
  • A medical power of attorney can make only medical decisions on your behalf if you become unable to do so yourself.

Try to nominate people you know are trustworthy, financially astute and likely to be around when you need them. Don’t forget to tell the person who you nominate as an attorney of their appointment.

Consider a Testamentary Trust

The inclusion of a Testamentary Trust in your Will should be considered and provides protection of inherited assets and significant tax benefits.

Testamentary Trusts allow the income of the estate to be taxed more effectively through flexibility of distribution because the income can be distributed to those beneficiaries that pay the lowest rate of tax.

Here are some reasons why you would create a testamentary trust:

  • The beneficiaries are minors (under 18 - 21 years old)
  • The beneficiaries have diminished mental capacity
  • You do not trust the beneficiary to use their inheritance wisely
  • You do not want family assets split as part of a divorce settlement
  • You do not want family assets to become part of bankruptcy proceedings
  • A trust will be administered by a trustee who is usually appointed in the will.

By using a Testamentary Trust, children are treated as an adult for tax purposes and are not taxed at the penalty tax rates that normally apply to unearned income of those under 18.

A testamentary trust is a trust set out in a will that only takes effect when the person who has created the will, dies. Testamentary trusts are usually set up to protect assets.

A trustee must look after the assets for the benefit of the beneficiaries until the trust expires.

The expiry date of a trust will be a specific date such as when a minor reaches a certain age or a beneficiary achieves a certain goal or milestone, like getting married or attaining a specific qualification.

Use your Superannuation wisely

The payment of a death benefit from a superannuation fund to a surviving spouse or a minor child can be very tax-effective. However, there are often situations where clients have estate planning goals that are more compelling than just tax minimisation. These may include ensuring that vulnerable beneficiaries are protected or that assets are available for distribution to non-tax dependants, including charities.

Dependant on your situation your superannuation benefits may or may not form part of your estate which will be administered by your Will.

Therefore your super needs to be carefully considered in your overall estate planning. Strategies should be used to ensure tax upon death is minimised. This planning can only be done prior to death and it is best to get qualified advice.

Click here to find out more about Powers Superannuation Services.

SUCCESSION PLANNING

Sustaining Families and Farms

Are you preparing to leave your Family Farm?

If you plan for your exit now, you will have a goal to work towards, as well as a strategy to achieve it. Careful planning and patience is required to ensure a smooth transition.

All too often poor succession planning can lead to disputes, family feuds and the breakdown of a farming operation that has lasted generations.

Plan, and plan early

This first step is an important one. You will need to review a number of personal and financial issues and decide on some broad objectives regarding the transfer of your farm.

Establishing a clear plan as early as possible will assist in long-term decision making for the farming enterprise and lessen the risk of disputes or disappointment when the time comes.

All over the country farming families struggle with the issue of competing interests when attempting to sort out mum and dad's retirement and who gets the farm when it's time to pass it on.

To help ease this struggle, there are a number of fundamental principles that should be considered when starting to plan for the handover of your farm:

  • Identify the needs and aspirations of each family member and manage their expectations.
  • Build, maintain, and if necessary repair relationships between family members.
  • Work out what the parents want when they retire - where they'll live, what they'll do, what income they will need etc.
  • Transfer management and control of the farm business over time, and set a goal for when this will be completed.
  • Have agreements drawn up that cover ownership and income distribution amongst children who will work on the farm and those who won't.

Of course there's no one size fits all approach to farm succession planning – how can there be when there is so much diversity among the businesses and personalities involved!
Family Dynamics

Family dynamics are by far the most influential factor in the daily management of family owned rural businesses. There are differences in attitudes towards each other and towards the businesses itself and usually differences in opinion about how the business should operate.

Combined with this are differences in age, experience and mindset. For example, the younger generation is more likely to push the use of new technology or farming techniques and this can be met with resistance from older members of the family.

It’s vital that families have a clear decision-making hierarchy, well understood roles and responsibilities and there is clear and regular communication. Failure to report news - good or bad - can have damaging effects. It is also important to determine how high the business ranks in importance for all members of the family. Is it family first, business second, or vice-versa?

An understanding of your family dynamics and attitude will enable a better outcome when making decisions on the future of the farm.

Maintain fairness and equity

When it comes to succession planning, tension can arise when the next generation feels that distribution of assets or responsibility has not been addressed fairly.

One sibling may feel as though they work harder than the rest, or that a sibling with an affinity to farming might be ‘better off’ due to the higher value of farming assets over non-farm assets. Careful consideration is required to ensure the allocation of assets is fair and equitable.

In families where there are non-farming children, the issue that often gives parents the most difficulty is deciding on an arrangement which is equitable for all of their children. An equitable arrangement is not necessarily an equal one. In many situations, the equitable arrangement will be one in which the farming child receives a greater portion of the parents' estate so that he or she is able to continue running the family business.

It is important to remember that your idea of equitable might be completely different to that of your children's.

Financial Plans

A major consideration for farm business owners is to consider whether their succession plans are financially viable.

It’s also important to consider the structure of the business and the financial implications such as who will own each asset and the impact of capital gains tax or transfer costs if assets were passed on.

In addition, rural businesses and, in particular, farms, can also suffer from low returns resulting from difficult seasons. It’s important that this is factored into the financial viability of passing the business on to future generations.

The desire might be to hand over the reins to the next generation, but a farm might only be able to support one family and if multiple siblings are involved, this has the potential to put stress on family relationships.

Avoid the "Cash Trap"

Keep in mind that profits must provide for a number of competing interests illustrated below:

The-Cash-Trap

The family farm can not usually be transferred to the next generation at fair market value without jeopardising the ability of the farming child to meet the various needs depicted in the "Cash Trap" diagram above. Some form of subsidisation is usually necessary, in the form of a deferred withdrawal of the parents' investment, reduced interest rates, or a reduction in the transfer price. You also need to consider both Federal and State taxes on any transfer of the farm that is being considered.

The real question to be answered by you is whether the amount of subsidisation required to make the transfer feasible is consistent with your goals.

FUTURE PROOFING THE FARM

The Family Farm is more a way of life rather than running a business.

However the cold facts are that running a farm is managing a business.

While a farming business can be more vulnerable to external influences such as weather conditions and market fluctuations, there are a number of business principles that farmers can implement to lessen the impacts of these events.

1. Cash-flow forecasting – One of the most common business mistakes and the reason for many business failures, is poor management of cash-flow. Understanding the flow of cash within your operation is essential to making correct decisions around expenditure. Cash flow is the key to survival for any business. Even the most profitable business on paper can be susceptible to bankruptcy if there is negative cash flow.

For farmers, environmental, bank lending practices and economic conditions have significant impacts on cash flows. Debt repayments are only one aspect of cash flow management for a rural business. Maintaining a comfortable lifestyle, growing the business, supporting other family members and maintaining good land management practices are also important factors to consider.

A cash flow forecast will identify your current position and assist you to plan for the future. Regular reviews of the forecast will assist you to spot any future setbacks that may leave you short of cash. You can then change your plans to account for this.

The sooner you understand your cash flow, the sooner you will be able to run the business smoothly and keep on top your business' financial health.

2. Capital expenditure Planning – Planning for capital expenditure is a vital part of overall Strategic planning for a farm. A plan detailing capital expenditure can assist with future equipment acquisitions. Mapping out effective life and a replacement program can highlight possible cash-flow issues and help in cash-flow management.

3. Reverse the Set and Forget Trend – “Set and forget” represents major benefits to banks and other financiers as you could be missing out on a host of cost saving opportunities, such as reducing interest payable and bank fees.

It is also an important way to ensure that the security in place for your finance facilities is still the most appropriate type.

4. Group structure – Many farm businesses are either partnerships or family companies. For small operations a partnership may be sufficient, however, while complicating some aspects of the business, a company structure may offer greater financial protection to the individuals involved. Partnerships and family businesses can be difficult to establish unless terms and conditions are clearly defined and understood by all parties. Family businesses which have been established for generations may work well, because over the generations, roles and responsibilities of each family member have evolved slowly. When a family enters a new farm business, the partners may have different ideas and aspirations. Often one person will work more than another, leading to resentment developing. Tensions can arise, conflicts may occur, and family relationships may suffer. For those who adapt easily, and communicate well, a family partnership may survive and grow into a strong and lasting business, but for others it may lead to a serious degradation of family relationships.

The correct structure for your farm can provide income tax flexibility, degrees of asset protection and succession ease.

5. Off-farm wealth creation – Commodity Price, interest rates, economic fluctuations and the weather all combine to make farming very cyclical. It is therefore important to build off farm investments. These can tide you over in the bad years and in the longer term form a basis for a retirement fund, easing the succession for all generations.

It is beneficial to direct any surplus profit into diversified investments outside of the agri-industry, effectively from a risk management perspective. This can be done via self-managed superannuation funds, trusts, shares, property or other wealth creation entities.

6. Succession Planning – If you plan for your exit now, you will have a goal to work towards, as well as a strategy to achieve it. Careful planning and patience is required to ensure a smooth transition.

All too often poor succession planning can lead to disputes, family feuds and the breakdown of a farming operation that has lasted generations.

Establishing a clear plan as early as possible will assist in long-term decision making for the farming enterprise and lessen the risk of disputes or disappointment when the time comes.

7. Estate planning – Estate planning ensures you enjoy the benefits of your assets now and provides for your beneficiaries effectively in the future.

Estate planning is not just about death and wills – it is about the protection and distribution of assets in both your lifetime and after death.

8. Review of superannuation and Self-Managed Super Funds (SMSFs) - There are now more than half a million Self-Managed Super Funds in operation in Australia. This recent surge in the use of SMSFs has provided primary producers with alternative options in respect of the utilisation of superannuation entitlements and also a tax effective way to hold business real assets like farm land. Concessional contributions to superannuation can enable you to reduce taxable income and increase off-farm assets. This also assists with succession planning and exit strategies. There are now more than half a million Self-Managed Super Funds in operation in Australia. This recent surge in the use of SMSFs has provided primary producers with alternative options in respect of the utilisation of superannuation entitlements and also a tax effective way to hold business real assets like farm land.

9. Farm Management Deposits (FMDs) – Farm management deposits (FMD) are a risk-management tool to help farmers deal with uneven income, which is common in agriculture because of natural disasters, climate and market variability. The FMD scheme complements other risk-management strategies available to primary producers, such as developing fodder and water reserves, financial planning and diversifying production systems.
If you are a primary producer, this scheme allows you to:
• Make farm management deposits
• Claim a tax deduction for FMDs you make in the income year you made them provided the FMD is not withdrawn within 12 months.

10. Income deferral - This strategy allows business owners to reduce tax by deferring sales into the following financial year. Livestock revaluation or stalling sales receipts can be considered.

EQUIPMENT FINANCE

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Financing equipment allows you to start using the goods straight away while making set monthly payments. This protects your cash flow and can provide tax benefits.

Having all of your financial information on hand and understanding your tax situation guarantees fast approval and the correct advice.

With almost fifty of experience, extensive product knowledge and access to over 35 lenders, Powers finance brokers can help you find the best financial product for your needs.

There are a number of different ways to finance the purchase of vehicles and equipment for your business. Leasing and Chattel Mortgages each have different tax, accounting, GST and FBT implications.

Leasing

Leasing allows you to have the use of the equipment while making regular payments to the lessor (the owner of the asset).

Under a leasing agreement you do not own the equipment but can have the option to purchase it at the end of the lease (usually for a markedly reduced cost).

Leasing payments (which will incorporate financing costs) are deductible over the life of the lease (and the payment and therefore deduction is generally consistent each year).

GST credits can be claimed on each payment (if registered).

Chattel Mortgage

When you finance equipment using a chattel mortgage, you own the asset upon purchase.

A chattel mortgage will entitle you to claim depreciation on the equipment based on the effective life of the asset and your method of depreciation (deduction will generally be higher in the earlier years if using a pool or diminishing value). GST can be claimed upfront when the equipment is purchased (if registered).

Each repayment includes a principal and interest component, although it is not generally separated. The interest component will be deductible when paid. The principal of each repayment will reduce the value of your debt.

Key Factors to consider

The key factors to consider in deciding which financing option is most suitable for you are:

  • Timing of deductions – you may have the opportunity for accelerated depreciation if you choose to lease short term, (although this may have cash flow implications)
  • Legal ownership/title – do you want to own the equipment
  • Finance establishment costs and inherent interest rates associated with both a chattel mortgage and lease

If purchasing equipment it would be beneficial to discuss the various financing options available to you with your Powers’ advisor, to ensure you are choosing the option that will suit your situation.

All of these options mean easier cash management. No large capital outlay up front means no drain on working capital. Repayments or instalments can be fixed, or can be tailored to suit your cash flow.

You may also be able to claim tax benefits if the equipment is being used to generate income.

And if you need new equipment when your contract ends, you can roll over to a new contract, subject to approval.

When considering purchasing equipment there are different financing options you can consider, these options have a range of different tax outcomes.

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These finance products allow you to take advantage of advances in machinery and efficiencies offered by the latest technology, whilst minimising the impact on your farm’s cash flow.

Available across a broad range of plant and equipment used in agriculturally related enterprises, including:

  • Tractors, harvesters, on-farm storage/silos, haymaking/silage, swatting, spraying, irrigation, seeding and tillage equipment
  • Compaction units, boll buggies and haul-out equipment
  • Business vehicles, ATV’s, 4WDs, trucks, earthmoving and material handling equipment
  • Milk vats, dairy equipment, automatic feed units and grain storage bins
  • Fruit picking and grading equipment, spraying units and spreaders
  • Grape harvesters, spraying equipment and processing equipment associated with viticulture
  • Quality used plant and equipment, subject to age limitations