In recent times many clients have been asking for alternative investments to be added to their investment portfolio – investments that offer the opportunity of good returns while behaving very differently to other types of investments. One of the investments identified is the export-driven agribusiness sector, an attractive alternative investment, particularly for high income earners.
A new asset class
Although a relatively new asset class in Australia, (the opportunity to invest in agribusiness has developed in Australia over the past thirty to forty years), the managed agribusiness investment sector is well-recognised and established in the United States. In the US, well over $2 billion is invested in this sector each year by individuals through mutual and pension funds.
Unfortunately Agri-investments are often overlooked because of perceptions of high risk and low returns. Studies by Australian Agribusiness Research Group demonstrate that reality is the opposite. In fact they found the top 25% of agri-investments can produce returns almost as good as the All Ordinaries returns with lower volatility.
In addition agri-investments are often negatively correlated to other assets classes and therefore as part of a diversified portfolio can increase returns while reducing overall risk.
Last year the MIS industry attracted in excess of $650 million of investment, with 80% of the funds directed to forestry projects. This year industry sources suggest $1billion will be invested and consequently projects that receive higher ratings from the independent research groups are again likely to sell out prior to 30 June.
The MIS industry has matured and is now highly regulated with many of the managers large ASX listed companies.
What are agri businesses?
Agribusiness is simply the business of growing crops for human consumption and use. For example the sale of almond, olive, citrus, table grape, mango and eucalyptus crops are all directed primarily at the export markets, bringing in valuable overseas revenue to Australia.
How do agri business investments work?
Investment costs (establishment and ongoing) are generally treated as expenses and are immediately tax-deductible against other income. Proceeds from the sale of the crop (upon harvest, either annually or upon maturity) are treated as assessable income, when received. Thus, these managed agribusiness investments offer potentially high after-tax returns and act quite differently to the fluctuations of the traded investment markets.
Investors in these projects do so for a number of reasons – to diversify their portfolios, increase their investment returns, to obtain an income stream and to make the best use of tax dollars.
Year End Tax Planning For Investments
Through managed investment schemes (MIS) small investors are able to participate in world-class agriculture projects with the additional benefit of being up to 100% tax deductible. ATO product rulings have also provided certainty on the tax deductions offered.
An agri-investment prior to 30 June can provide a range of wealth creation and taxation investment strategies. By deferring a current tax liability, it allows reinvestment of tax savings into:
- Reducing non-deductible debt
- Acquiring a share portfolio
- Increasing superannuation contributions
- Acquiring an investment property
- Reducing periodic PAYG payments
- Creating future income for a specific purpose (eg: private education fees, deposit for a house, superannuation contributions, lump sum mortgage payment)
- Repayment of Director/Shareholder division 7A loans
- Managing superannuation surcharge liabilities
- Providing an effective retirement income stream
- Sheltering capital gain or abnormal income.
Sound investment returns
If you are looking for an investment that offers sound commercial returns and you answer yes to one or more of these items, contact your adviser to arrange an appointment to learn more about how an agribusiness investment may assist you in building future wealth.
- I expect to earn more than $60,000 this financial year
- I am paying Superannuation Surcharge
- I have sold an investment property this year
- I have received an ETP payment
- I want to start a family within the next five years
- I want to provide for my children’s private education
- I want an environmentally friendly investment
- I want a tax-effective investment
- I have a Self-Managed Super Fund
Well managed agri-investments is a sensible choice when considering diversification of a portfolio and managing tax issues.
Please note: The advice contained herein is general securities advice only. It has not been prepared taking into account your particular investment objectives, financial situation and needs. You should assess whether the advice is appropriate to your individual investment objectives, financial situation and particular needs. You should do this before making an investment decision based on the general securities advice. You can either make the assessment yourself or seek the help of a professional adviser.
Source: Adrian Raftery Wawrzyniak Accounting 2007