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.
Importantly the risks involved with
these projects are very different from typical investment
risks and this enhances portfolio diversification.
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. |
