Farm tax planning - don't miss a golden opportunity
With the end of the financial year upon us, we turn our attention to reviewing year to date results and minimising tax. It's vital now to take a fresh look to ensure we are not missing an opportunity to make a good year - great.
Many farming businesses have been fortunate to experience good seasonal conditions and strong commodity prices. With favourable interest rates and the temporary full expensing provisions, we have seen expanding farm operations, major spending on plant upgrades along with significant farm infrastructure improvements including hay sheds and grain storage assets.
For some, this expansion and temporary full expensing has provided shelter from tax during this profitable period, allowing further expansion or debt reduction without the tax burden.
For clients Matt and Laura, RSM Australia recently calculated that they will make a tax loss of $500,000 in 2022 after a tax depreciation claim of $1,400,000. "I'm very happy with that, as there is no tax to pay," said Matt.
Matt & Laura have large FMD balances, they were saving for a bad year. Making a withdrawal now seems contradictory in one of their best years, however, it can return funds to cash flow with little or no tax payable.
Further to this Matt & Laura have some assets with significant capital gains. This year presents the opportunity they need to realise some assets and ensure they have taken full advantage of their personal tax-free thresholds.
For those operating through a company, this position would create the opportunity to use the loss carry back tax offset to access a refund of tax paid in earlier years (as if it were deducting the current year loss from the earlier year profits).
For clients Brooke & Chris, their strong financial position and increased farm storage makes the decision on when to sell hay and grain a significant discussion point.
After a detailed review of their current tax position, modelling future year tax positions and scenario analysis for various outcomes, Brooke has taken current prices and realised additional income and was able to make an informed decision.
Brooke and Chris will take advantage of the additional cash flow and strong result by contributing to superannuation using concessional contributions and carry forward unused concessional contributions.
"Our superannuation has been neglected for too long," said Brooke. Balances were less than $500,000 on 30 June 2021 and they each have concessional contribution limits of $27,500 plus any unused concessional cap amounts from the 2019 to 2021 years. With no recent contributions, their maximum contribution in 2022 will be $102,500 each.
These contributions can serve multiple purposes with an opportunity for large tax deductions, concessional tax on earnings, asset protection and creating a significant asset to provide security in retirement and enable succession and estate planning.
Planning provides the opportunity to add value to your business and helps you achieve your goals; this proactive approach and strong understanding of RSM's clients has been consistent throughout their 100 years in business. If you want to get started on your tax planning, contact an RSM adviser today.
