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Farm Succession Planning

Family farm succession is becoming increasingly difficult as farms tend to be bigger in order to be financially viable and support higher levels of debt. Alternatively, smaller farms may be financially viable for the parents as debt levels are low however due to high land prices, when the succeeding generation take over these smaller farms are unsustainable financially as high levels of debt are incurred to purchase them.


Some key points when thinking about farm succession planning include:

  • Get professionals involved early – lawyer, bank, accountant, and farm consultant. One of these professionals needs to lead the planning process, generally this is the accountant.

  • Start as early as possible as this provides options and the ability to manage tax issues more effectively. The succeeding generation has time to plan financially and it gives time to sort out the business structures to manage tax.

  • Begin the plan with the end of your life in mind and work backwards. What do you want to achieve in your life, and what steps do you need to take to achieve that?

  • Record everything in writing so everyone is on the same page.


The four succession ‘rules’ are:


1.      Mum and dad must have inflation proof and guaranteed income to sustain their retirement.

2.      Have a plan for non-farming families. Fairness might not involve equal amounts of capital if buying out siblings. For example, non-successors get less capital but at an earlier age.

3.      The succeeding generation must have the chance for success. They can’t incur so much debt that it makes the business financially unviable, and budgets must be done on worst case scenarios.

4.      The family must remain a family. This involves borrowing from the bank not family; treating the succession plan as a business deal by getting independent valuations; and seeking independent advice.


There is no perfect business structure for succession planning, however the one structure that is not suited is a trading trust which owns all the assets and operates the business as there is no way for the succeeding generation to buy into the business without assets being sold. Generally, a company structure works well as shares can be purchased over time.


A capital repayment linked to farm profitability works well.


Careful planning is required as there can be tax implications. One tax issue is the valuation of livestock. If the stock is valued on herd scheme this makes the transfer easier as there is a deemed disposal at herd scheme values to the associated party therefore no tax consequences. If the stock is valued on NSC there is deemed disposal at market value which creates a tax liability, so a short-term bailment could be considered. Another issue could be depreciation recovery on plant and equipment and buildings therefore requires advance tax planning.

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