This quick guide will provide answers to all the important questions:
This quick guide will provide answers to all the important questions:
StockCo prefers to provide livestock finance facilities to clients that satisfy the following criteria:
StockCo purchases the livestock on the producer’s behalf, or from the producer, through settlement of an invoice and therefore StockCo owns the livestock. The livestock is then bailed to the producer for them to farm. StockCo receives a fixed return based on the financing agreement in place with the producer and all surpluses from the sale of the stock belong to the producer
As StockCo owns the livestock it is not recorded in the producer’s balance sheet of their accounts. Similarly, there is no livestock loan to account for. This means that there is no need to account for the value of livestock or any changes to those values in the producer’s accounts or tax returns and therefore simplifying the accounting and tax. There is also no interest charge to account for or accrue during the term of the financing in the accounts of the producer.
When the livestock is sold or slaughtered StockCo receives the proceeds directly. StockCo then deducts the purchase price of the livestock and any finance costs. The balance is paid out as a margin to the producer and ordinarily at this point it would be recorded as income to the producer. Producer’s do not ordinarily accrue the grazing income into their accounts during the term of the finance as the amount of income they will receive and when is not known.
As StockCo owns the livestock which is bailed to the producer, the amount due to the producer is essentially a grazing payment. The finance charge (sometimes referred to as interest or an interest rate for understandability or comparability) is simply part of the method of calculating the grazing payment to the producer as a deduction from the net proceeds on the sale of the livestock. E.g. Sale price – purchase price – finance charge = grazing payment due to the producer.
The calculation is done exclusive of GST and then if the producer is GST registered GST is added to the payment. The net result for the producer is no different to an ordinary loan with a comparable interest rate.
In addition to the reporting provided to the producer for each transaction (each purchase and sale of livestock) StockCo has available a number of period transaction and balance reports that are able to assist with the compilation of year end accounts and analysis of performances.
The responsibility for deaths is that of the producer, the same as if they had taken a normal loan to purchase the livestock. StockCo will simply account for deaths when calculating the payment of the producer’s net margin (i.e. reduce the “grazing payment” for the deaths).
We appreciate that farming livestock is not a lineal process and that sometimes stock may take longer to grow to their target weights. It is often beneficial for producer’s to hold their livestock for a longer period in order to maximise their returns and so the lending term can be extended to cater for this as per the terms of the financing arrangement.
No. Although StockCo settles the full invoice including any GST, finance costs are only charged on the GST exclusive amount.
Disclaimer: This information is provided for general informational purposes only and is not intended to replace or serve as a substitute for any legal, accounting, tax or other professional advice. You should consult your own qualified professional advisers to understand your legal and tax obligations and should not rely on any information contained in this document.