Surviving the dry spell

It’s estimated that 70 per cent of all businesses in Australia are family businesses, although there’s a distinct lack of data about what a family firm actually is and how they are structured.

The structure adopted for these businesses, however, is vitally important. Dr Voogt says family firms often select a structure without knowing the long-term effects, benefits and challenges it will bring. Tax policy uncertainty and ongoing tax changes make it difficult for family firms to plan ahead.

“In Australia, there are four main business structures: sole trader, partnership, company, and trust,” Dr Voogt explains.

“These different structures impact each business in unique ways, and can influence cashflow or make it difficult to restructure or change ownership as part of succession planning without significant cost and a lot of red tape.

“The idea that family trusts are for wealthy Australians, who want to reduce their tax, is far removed from the facts. Family trading trusts are micro businesses, not wealthy businesses.”

In the pilot study, Dr Voogt is working with primary producers, small business owners and community leaders to determine how businesses in the RAPAD region are currently structured, taking into account the unique features of the area.

Specifically, the team is investigating the differences between business structures, participants’ practical access to business-generated cash, and the way capital is raised and existing ownership is transferred.

“The data we collect has the potential to illustrate how farm businesses and town businesses have the same ‘lumpy’ income during prolonged droughts.”

The study is the first of its kind to focus on how the law and accounting intersects in small business structures.

It draws from Professor Martie-Louise Verreynne’s world-leading research in innovation in small businesses. The team aims to contextualise Professor Verreynne’s research into farmers’ capabilities, regional businesses and business model design, within the law and accounting.

It will provide much-needed insights about farm businesses and small businesses in the region, allowing the research team to develop best-practice ways for primary producers and small businesses to maximise cashflow, while also helping inform policy recommendations for government.

“We are also concerned about tax policy dealing with family trusts. Our main concern is that policymakers use concepts such as farm trusts without understanding which primary production assets are held in trusts. There is a risk that tax concessions for farm families will miss the mark.”

The team’s policy recommendations will go beyond income-tax law, to reflect the impact that the drought has had on farming practices in the region.

“What we learn from Dr Voogt's work will be instrumental in supporting the individual client and whole communities, through the work we undertake through Rural Financial Counselling Service North Queensland and RAPAD,” Mr Arnold says.

Data collection for the study commenced in February, with Dr Voogt travelling to the seven shires regularly and meeting with business owners to conduct interviews and build case studies.

She says her experience as a chartered accountant, and her expertise as a taxation and commercial law academic, means she understands some of the practical challenges these businesses face.

“I'm able to use practical business experience and skills from my previous job outside academia to take a pragmatic approach to the impact of the law on businesses,” she says.

Dr Voogt says the ultimate goal is to make it easier to operate farm businesses and small businesses in remote and rural regions, ensuring people stay in the regions and increasing population growth.

“Prosperity and quality of life for the 10,000 people from the seven shires matter for us as a country,” she says.

“Supporting and retaining farming families on the land means that we've got generations there that understand the flow of rivers and the ebb and flow of drought, and how to get the most from the region.

“But 10,000 people can't sway politicians. And 10,000 people can't drive policy. This is where the pilot study plays an important role in presenting evidence and explaining the interaction between farm and town businesses using data and case studies to strengthen the voice of communities in Central West Queensland.”