The farming industry is one of the cornerstones of the Australian economy. In recent years, the idea of getting into farming may have spawned amongst people seeking to supplant their income or to start over, even in retirement. Investing in one using your superfunds may require some finesse in crunching the numbers through retirement planning of the kind available at ASAG.
Buying a specific plot of land requires establishing your own Self Managed Super Fund (SMSF), with an outlined investment strategy that clearly states farming as part of it. A financial advisor with experience in SMSF matters will be effective in helping things go forward.
The property itself should pass the ATO Sole Purpose Test, meaning that the SMSF should be exclusively geared on providing retirement benefits to its named members, or dependents if a trustee passes on before retirement.
Business Real Property rules also mandate that any structures in the plot will be only for business purposes, as well as the farming activities themselves must follow established guidelines. If there’s a farmhouse, you can reside there as long as the property’s total land area is at a maximum two hectares. Business Real Property rules do not apply on vacant lots.
The money from your super would be channelled to the SMSF and be used to buy the farm property under a loan. Taking out the loan to buy the place will account for factors such as the overall state of your finances, any rental income and the overall market value of the property as assessed by a licenced appraiser, with fees and stamp duty added later. The lender will also examine the assets and balance under the SMSF to determine if the fund can fully support the loan, in addition to the SMSF’s own operational expenses. The ATO has a list of SMSF-related expenses that may be tax-deductible.
Be warned that if the property market value is above the original cost, a CGT liability may arise.
Once the property has been purchased, it will be leased to the buyer per an “arms-length” agreement. The agreement should detail the amount and frequency of rent payments addressed to the SMSF.
Development on the property
The buyer will be responsible for all development on the property, but as a rule, cannot be undertaken through the SMSF. Vacant land development via the SMSF, as well as subdividing the lot, is also not allowed.
Viability of purchase
Buying land as a retirement investment vehicle seems lucrative, but a closer look at the market bears watch as well.
Rabobank’s latest edition of the Australian Agricultural Land Price Outlook noted a 27 per cent increase in agricultural land prices across Australia for 2021 with more double-digit growth projections towards the end of 2022, based on data indicating 25 per cent price increases so far. The report was centred on strong farm production output and high commodity prices.
When broken down by state, Victoria led the way in price increases for cropping land (78 per cent) and arable land (42 per cent). Nine per cent of grazing land sales as well as six per cent of all arable land sales in 2021 were worth at least $10m each transaction; these sales took place in NSW and Queensland.
However, while the report forecast the growth keeping momentum into 2023, a slowdown was expected right up into 2027 based on declines in economic outlook and potentially higher operating expenses.
The ASAG Reverse Mortgage — Funding your farming life
Going into farming can be a way to live a quiet life in retirement. We support our Australian customers who are about to enter retirement or already in retirement by offering our equity release facility, one in particular is our reverse mortgage.
The ASAG Reverse Mortgage is beneficial in helping enhance your income in retirement. It allows seniors to access the wealth in their home without ongoing payments and having to sell. The loan is paid off when you permanently leave your home, either you downsize, move to aged care, or pass away.
The funds you receive can be used as you see fit, including Retirement Planning or any other objectives.
The friendly ASAG team can assist you with further details on how our equity release solutions work. Our lines are open on 1300 002 724 and at firstname.lastname@example.org so you can contact us or send your enquiries at any time.
You can quickly do your own assessment by using our free tool below to know your available equity.