No one goes through the work, risk and sacrifice of running a family business without hoping that it will last. Building value that endures for many farms is as much about continuing the family traditions and as it is about heritage. And yet, when the time comes to pass on the family farming business there can be conflict, confusion and uncertainty.
Without a succession plan in effect – for both planned and unplanned events – how will family farms transition successfully? In this edition of the Agribusiness Bulletin, we take a look at succession planning.
The National Farmers’ Federation estimates that there are approximately 134,000 farm businesses in Australia, 99 percent of which are family owned and operated. Our farmers are old, and getting older, with the average age of Australian farmers at 52 years which is 12 years above the national average for other occupations. According to analysis by Deloitte Access Economics on data from the Australian Bureau of Statistics, farmers are five times more likely than the average person to still be working over the age of 65.
There are a number of reasons farmers may work longer including:
Add to these the family traditions around who should inherit the farm and succession planning often ends up in the ‘too hard basket’. Succession planning is difficult at the best of times and it is much more than the transfer of assets - a poorly planned and executed succession plan may not only have financial and taxation implications but can also have a major impact on family relationships.
It is preferable to start the process sooner rather than later – an earlier start may give you more options and time to implement the plan, rather than being forced into a particular outcome at the last minute. It also means that family members will know what to expect when you retire or are unexpectedly able to continue farming.
Succession planning is the development of a plan that will allow a smooth transition of the business and any assets with minimal disruption to the business or, importantly, family relationships.
It is a challenging process - it is hard to talk about subjects like death, serious injury and divorce. Often family members will have different expectations in respect of future ownership of assets and aspirations in respect of involvement in the business. However it is better to understand and address these at the time of formulating the plan rather than have a family member challenge a Will following the death of the matriarch or patriarch.
Additionally, you shouldn’t assume that the chosen successor has the ability or drive to take control of the farming business.
Part of the succession planning process should be opening up lines of communication with family members. It can be tough having succession conversations, therefore a family may bring in an independent facilitator to ensure that the conversations stay on track and are not derailed by personal issues.
In developing a succession plan, the following key questions could be asked:
The tax consequences of transferring assets can be substantial with the potential for stamp duty, income tax and capital gains tax to significantly erode capital available to the continuing farm business and / or the retiring farmer. It is therefore important to involve professionals early in order to develop a tax efficient structure, for example by accessing the small business capital gains tax concessions:
Getting a plan in place can take time, effort and a need to balance competing interests. However, a successful plan can achieve multiple goals:
It should come as no surprise that preserving a business’ value for the future can be just as challenging as building that value in the first place. Unfortunately, there are a number of reasons why some business leaders recognise the magnitude of the challenge – and why others, consciously or not, look past it altogether.
Partner | Tax
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