When farmers Graeme and Victoria first came to us, it was with the goal of reducing their insurance premiums and simplifying their super.
We were pleased to be able to help them in this regard by:
- Consolidating their super (which also saw their yearly fees reduce by $1170).
- Bringing their yearly insurance premiums down by $20,000 (by reducing their level of cover but retaining enough to cover their overdraft and debt).
As so often happens when we work with clients, conversations about something relatively narrow and focused (insurance and super) turned to something wider and more life planning related. In this case, we got chatting with Graham and Victoria about their plans for retirement. While they were in no hurry to leave their farm at the time, Graeme and Victoria were curious about what transitioning away from the farm might look like from both a financial and emotional point of view.
An eye to the future
At the time of that conversation they owned two parcels of land:
- The 600 acres their family homestead sits on
- 2000 acres of farmland
They indicated they’d need our advice again when they decided to sell the 2000-acre parcel of land but had no immediate plans to do so.
But then an unexpected offer on that land that was too good to refuse suddenly came through and it was ‘all hands on deck’ to ensure the proceeds of the sale were managed in the most effective way for Graeme and Victoria’s needs.
The benefits of holistic financial advice
As Graeme had just turned 65 and Victoria was turning 60 later that year, there were time constraints to be dealt with around when and how much they were able to contribute to superannuation.
We worked closely with their accountant to identify:
- Which of the Small Business Capital Gains Tax concessions could apply to the sale of their farm, and
- How those proceeds could be best invested using both their superannuation and personally-owned investment portfolio.
In the end, we didn’t use all of the Small Business Capital Gains Tax concessions available (specifically, the 50% active asset reduction) as that allowed us to make a larger tax-free payment into super.
From there we devised a plan to structure the investment of the property proceeds in a way that:
- Allowed them to maximise their use of superannuation to invest funds tax effectively
- Invested the funds in low cost, broadly diversified investments that suited their priorities and objectives
- Retained access to part of the capital to support their shorter-term objectives and transition to retirement.
- Saved them each $52,600 in tax (a total of $105,200).
A plan for the future
I noted above that we retained access to part of the capital so we could support their transition to retirement. Part of this capital was used to purchase a property in the south west. They plan to build a home on this property and that will become their family home when they retire from the farm and sell the remaining 600-acre parcel of land.
Once that 600 acres is sold, they’ll have both the property down south plus an asset base of around $3million.
But the nicest thing is that there is no hurry for them to sell up and move off the farm. They can spend some time getting their head around this.
When they do decide to make the move, they will be moving to a rural location that is closer to their kids in Perth but still close to their family members who live down south. Interestingly, it will also be a situation where they have more income than they had while farming – something that will hopefully ease the emotional side of the transition somewhat.