Blog

The structure you choose for your dairy farming operation will influence virtually every aspect of your business, from daily tax obligations to long-term succession planning. Yet many farmers operate under structures chosen years ago without considering whether those arrangements still serve their current needs and future objectives.

Understanding the Structural Landscape

Each business structure offers distinct advantages and limitations. Partnerships provide simplicity and tax transparency, companies offer flexibility and potential tax advantages, while trusts facilitate succession planning but come with increased complexity and higher tax rates.Your decision should factor in profitability, growth plans, family dynamics, and succession goals. A structure that works for a young couple might not suit a multi-generational operation with expansion ambitions.Short-term tax benefits should not come at the cost of long-term challenges. Align structure with both present operations and future vision.

Partnership Structures in Practice

Partnerships are common among husband-and-wife dairy farming teams. Income flows directly to personal tax returns, which simplifies administration.However, as income grows, the 39% top marginal tax rate can take a significant portion of profit. Partnerships also complicate succession and external investment, as they require unanimous partner agreement for new entries.While effective for smaller operations, partnerships can hinder growth, banking relationships, and risk management in larger or more complex farms.

Company Structures and Their Advantages

Companies provide flexibility and scalability. With a flat 28% corporate tax rate, profitable farms may enjoy tax savings. Companies also allow limited liability, straightforward investment via shares, and cleaner legal arrangements.They simplify succession—share transfers are easier than dividing land or equipment—and are more attractive to lenders and investors.However, companies require more administration, including director responsibilities, annual returns, and corporate governance compliance.

Trust Structures and Succession Planning

Trusts enable asset protection and long-term succession by holding land or assets for future generations. Though they face a 39% tax rate on retained income, distribution to lower-taxed beneficiaries can mitigate this.Trusts are often used in conjunction with companies—companies operate the business, while trusts hold ownership of assets or shares. This combination optimises both taxation and succession outcomes.Trusts must be carefully managed, with formal trustee meetings, accurate beneficiary records, and ongoing compliance.

Hybrid Structures for Complex Needs

Hybrid structures—such as companies owned by family trusts—are increasingly common for medium-to-large dairy farms. This blend enables tax efficiency, succession planning, and investment flexibility.Designing a hybrid model requires professional coordination between legal and financial advisors to ensure all goals are met without unnecessary complexity.

Making the Right Choice for Your Farm

There is no universal best structure. Considerations include: - Annual surplus: Partnerships earning over $360,000 may benefit from a company structure. - Family complexity: Trusts support asset preservation for multiple heirs. - Succession plans: Companies simplify ownership transfers.Evaluate structure options with your long-term vision in mind—not just current tax savings.

Implementation and Transition Strategies

Changing structures can be expensive—sometimes hundreds of thousands for high-value farms. Timing and planning are critical to minimize tax impacts.Strategies include: - Phased transitions: Implement the new structure for new activities while retaining the old for current operations. - Spreading transition costs: Over multiple tax years to soften financial impact. - Legal setup and governance: Ensure all agreements and filings are in place from the start.Work closely with accountants and lawyers to manage cost, compliance, and strategy. At CMK Chartered Accountants, we guide New Zealand dairy farmers through critical structure decisions. Whether you’re growing, planning succession, or just reviewing your current setup, we tailor our advice to fit your farm’s specific circumstances.Don’t let outdated structures limit your success. Contact CMK today to evaluate your business structure and prepare your farm for the future.