Agribusiness investment is a recognised tax effective investment that is particularly
valuable for those individuals paying the highest marginal tax rate. Investment
in Agribusiness can produce beneficial upfront tax deductions and at the same time
you can receive additional advantages such as:
- The satisfaction of investing in a sustainable economy
- Having the choice of a wide and varied range of investment products
- Minimal capital needed to get started – as little as $3000 in some instances
Importantly the risks involved with these projects are very different from typical
investment risks and this enhances portfolio diversification.
Agribusiness investments offer investors the opportunity to participate in primary
production, through a managed investment scheme. Projects cover a wide range of
agricultural sectors with many offering high levels of tax deductibility to reflect
the cost of establishing and maintaining these investments.
Agribusiness investments are best suited to investors seeking greater diversification,
attractive long-term returns and tax efficiency. Compared with returns from shares
and property the expected returns from some of the longer-term projects are quite
attractive.
We consider agribusiness investments to be 'true alternatives'. That is, their risk
and return characteristics are quite unrelated to those of the traditional asset
classes. As an example the return from a long-rotation (20 year plus) timber project
will be driven by a quite different set of risk factors when compared with those
of the traditional asset classes of shares, bonds and property.
While the tax benefits may look appealing it is important to note that future project
income will often be fully assessable (so agribusiness projects tend to defer tax
rather than eliminate it). Importantly the expected IRR figures already take these
tax savings into account.
Consideration should be given to ownership issues. For example, projects with high
initial tax deductions may be well suited to pre-retirees who could benefit from
tax deductions now, while the future income may be taxed at a lower marginal rate
in retirement. Some projects may also work well within a self-managed super fund
as long as it falls within the fund's investment strategy (and on the basis that
the self-managed super fund will continue for the term of the investment). Using
preserved funds from within a self-managed fund may be particularly useful for long-rotation
timber projects.
To avoid receiving large taxable distributions in a single year, consideration should
be given to using two or more smaller investments so that gains are realised at
different times. This also reduces the risk to the portfolio of one particular project
performing poorly and helps to smooth cash flow.
All recommendations should be in accordance with the guidelines outlined in the
Licensee's agribusiness accreditation course. The nature of agribusiness investment
means that from time to time there will be some disappointments. For this reason,
sensible portfolio construction is critical.
WHY INVEST IN FORESTRY?
As of 1-Aug-2008, only forestry related Managed Investment Schemes will be available.
This may change later in the year subject to the result of a Test Case.
In excess of 75% of funds raised through agricultural managed investment scheme
(MIS) projects over the past two years have invested in forestry due to:
- Underlying government support - 20/20 vision
- No on-going compulsory lease and management fees/ invoicable deducted from proceeds
- 100% tax deductible investment available up to 30th June (advantage of the 12 month
rule)
- Less volatile and lower agricultural risks than other commodities
- Timing of harvest can be changed to meet market conditions
- Sound supply/demand fundamentals - world consumption of woods is rising at 1.2%
to 1.5% pa whilst access to native forests is shrinking
- Large established international and domestic markets
- Socially responsible investment
|