Agribusiness schemes

Returns from the land

An agribusiness managed investment scheme uses your money to invest in livestock, farming, horticultural or forestry projects.

These investments are generally long-term with no early exit opportunities. In the past some agribusiness schemes have received bad press due to a number of high profile failures, so get independent financial advice before you sign up.

How agribusiness schemes work

An agribusiness scheme is set up to run an agriculture-related business on your behalf. You rely on the manager's efforts for any profit.

In livestock schemes, you may buy one or more animals and pay regular fees to a manager to look after the animals and sell them.

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.

Is an agribusiness investment right for you?

Agribusiness schemes may offer attractive tax benefits, but they are very risky. Many things can go wrong, for example:

Smart tip

The decision to invest in an agribusiness scheme should be based on the merits of the scheme, not on the potential tax benefits.

  • 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 most people.

These schemes may be suitable if you:

  • earn a high income and are in a high tax bracket, as you may benefit from tax concessions
  • are certain you can afford the repayments under any circumstances, if you borrow to invest
  • can afford to meet ongoing costs that may be associated with the scheme
  • 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
  • are aged over 60 - the average investment timeframe of 10 years may be too long to wait for returns
  • earn a low or middle income - you won't benefit as much from tax concessions as those in the top tax brackets
  • need your investments to provide a regular income.

How much to invest in an agribusiness scheme

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 agribusiness schemes.

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 of agribusiness schemes

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 have 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 expected.

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 investment returns.

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 before you invest in the land

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 ruling. 
  • What is the financial position of the scheme operator, e.g. are they reliant on getting further investors each year to stay viable? 
  • How is your money being used? What percentage goes towards planting, managing and harvesting 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 projects?
  • 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 term? 
  • 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 licence?
  • What commission is the adviser getting for recommending this product?

The high risk of agricultural schemes means you may lose some or all 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 advice.

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Last updated: 15 Oct 2018