Returns from the land
An agribusiness managed investment scheme uses your money to
invest in livestock, farming, horticultural or forestry
There can be tax benefits to these types of
investments. These investments are generally long-term with no
early exit opportunities. In recent years, agribusiness schemes
have received bad press due to a number of high profile failures.
Get independent financial advice before you sign up.
If you invest anything in these schemes, don't invest more
than a small portion of your money (as a rule of
How agribusiness schemes
An agribusiness scheme is set up to run an agriculture-related
business on your behalf. You rely on the manager's efforts for any
In livestock schemes, you may buy one or more animals and pay
regular fees to a manager to look after the animals and sell
In horticultural and forestry schemes, you usually lease some
land that is used to grow trees or plants. The promoter or manager
is responsible for planting, maintaining, harvesting and selling
the crop. You may pay all your money upfront or there may also
be regular fees.
For schemes with an Australian Taxation Office (ATO) product
ruling, you can claim a tax deduction for the money you invest.
In all agribusiness schemes, you are investing money now in the
hope of getting a financial return many years in the future.
investments right for you?
The decision to invest in an agribusiness scheme should be based
on the merits of the scheme not on the potential tax benefits.
Agribusiness schemes may offer attractive tax benefits but are
very risky. Many things can go wrong:
- Crops can fail
- Plants and animals can lose value
- Market prices will fluctuate over time, making investment
returns difficult to predict
- The scheme manager may collapse
- It is virtually impossible to on-sell your investment
For these reasons, agribusiness schemes are not appropriate for
These schemes may be suitable if:
- You earn a high income and are in a high tax bracket - you may
benefit from tax concessions
- You are certain you can afford the repayments under any
circumstances, if you borrow to invest
- You can afford to meet ongoing costs that may be associated
with the scheme
- You can afford to kiss the money goodbye
These schemes may not be suitable if:
- You are not already wealthy - these investments cannot be
converted to cash if you need money urgently
- You are aged over 60 - the average investment timeframe of 10
years may be too long to wait for returns
- You earn a low or middle income - you won't benefit as much
from tax concessions as those in the top tax brackets
- You need your investments to provide a regular income
How much to invest
The unpredictable nature of agribusiness schemes means you
should think carefully about how much money you are prepared to
invest. Your money may be locked up for many years and exposed to
high risk over that time. As a general rule, you should avoid
investing more than a small portion of your money in
Should I borrow to invest?
Many agribusiness schemes will arrange finance for you to invest
in the scheme. Borrowing to invest is not a good idea if the annual
loan repayments would not leave you enough money to live on.
If the scheme fails, you still have to pay back the loan. The
lender has the right to pursue you for repayments, so your home and
personal assets are at risk.
Get independent advice before borrowing to invest. The ATO may
query the tax deductibility of the loan interest if it appears as
if there is no real 'business risk'. Check the ATO website for the
latest developments or speak to a financial adviser.
Know the risks
There are many risks involved in agribusiness schemes. The
promotional brochures will tell you all the positives but here are
some of the risks.
You may be required to make additional payments
Some agribusiness schemes can call on you to make additional
payments. This can mean you pay the scheme more money than you
The scheme may run out of money
In agribusiness schemes, you put your money away for a long time
and hope that the business keeps operating until the end of the
term. But there is no independent body watching over the scheme
financially. This increases the chances that something might go
wrong and the scheme fails. If this happens, your money will
probably be gone.
The returns are hard to predict
The scheme's investment returns are unknown. Forward 'estimates'
are based on long-term sales projections - and many things can
change over time that will affect these projections. Crops may have
a bumper harvest or they may fail, prices may go up or down, or
demand for the product might be more or less than expected. This
makes it very difficult to come up with an accurate prediction of
The investment is poorly diversified
Generally with these schemes, you are limited to one manager,
one type of crop or livestock, and one geographic location. Your
money is not spread across a range of agribusiness projects so
there is no 'buffer' if the scheme fails.
The investment may not be tax-deductible
As well as claiming a tax deduction for the initial investment,
interest on borrowings may be tax deductible. You can only get tax
deductions for the interest on borrowed money if the asset is
intended to produce an income. If there is no income from the
scheme, the ATO could decide to disallow tax deductions and you
would have to pay tax on your investment.
Questions to ask
The product disclosure statement (PDS)
describes the risks involved with the investment. If there is no
PDS or if the scheme is not a registered managed investment scheme,
do not sign up. If you are not sure visit ASIC: do you have a
question to see whether the scheme is registered. Also check ASIC
lists for more information on checking registrations.
Get answers to these questions in writing from your adviser:
- Can the scheme ask you to make additional payments?
- Does the ATO have a ruling about the tax deduction available
from this investment? Be very wary if there is no
- What is the financial position of the scheme operator e.g. are
they reliant on getting further investors each year to stay
- How is your money being used? What percentage goes towards the
planting, management and harvesting of the crop and what percentage
goes towards the administration and marketing of the scheme and
profits for the promoters?
- What is the track record of the scheme operator for similar
- What does the state's agriculture department say about growing
the type of crops, or owning the type of animal, in the region
specified for investment?
- Can you sell your investment before the end of its
- What do you own at the end of the investment period?
- What taxation issues do you face when your investment matures?
What cash flow issues might you face?
- What authority does the adviser have to recommend this
investment? Are they licensed or authorised by someone who holds a
- What commission is the adviser getting for recommending this
The high risk of agricultural schemes means you
may lose all or some of your money, or make a worse return than a
less risky investment. Of course some schemes will succeed but be
very cautious and always seek professional financial
Last updated: 18 Dec 2015