Wind farms are potentially a wonderful thing for the community with good returns, however landholders should be aware of the legal and tax implications when entering agreements. Novice landowners interested in navigating the choppy seas of renewable energy agreements were given advice at the forum titled, “The Farmer, the Finance and the Fine Print”, on Monday, June 19,
Landowner Charlie Prell, lawyer Hugh Piper and tax expert Paul Williams answered landholders questions. Here are 10 tips worth bearing in mind:
1 Landowners should team up and form trusted partnerships with other farmers and their neighbours. There are many advantages for wind farm companies to work with this type of arrangement in place, including the reduction of duplication, increased transparency and better engagement with neighbours as well as hosts. The best rewards have been gained through team work.
2 Experts warn farmers not to sign license access agreements up front. In fact, they should not go anywhere without seeing a lease and understanding what will be offered. These agreements may just be three pages long, but they are very important. Early agreements saw farmers missing out on the millions that developers ended up getting.
3 There will be at least ten to twenty different types of income that can be yielded from the development of a windfarm, and landowners should seek equity stakes. It is important for those near wind farms to seek different revenue sources when speaking with their lawyer and accountants. Furthermore, they should also take into account other factors such as compensation that they can gain for things such as air strips that will be lost.
4 Farmers are warned to ensure that there is a gross up clause in their agreements with developers. When you have made various rent agreements, the payment of GST would depend on the generation of the required threshold of $75,000. It is usually the wind farm host that will issue the invoice.
5 Beware of income tax traps. When wind farm rent is not the primary production income, then those involved do not get the benefit of averaging in their tax returns. If their returns are more than $100,000, then farmers would not be eligible to make farm management deposits.
6 The tax expert at the meeting advised farmers to see if they could work their way into small business concessions, bearing in mind that land is an active asset.
7 It is important for farmers to seek regular update meetings during and after the construction of a windfarm, particularly with the project manager of the construction company. It is important for landholders to create a business partnership with the developer and understand the scale of the infrastructure which is to be built.
8 Land tax exemptions may be affected by the construction of a wind farm. Farmers are warned to make sure there is a balance between land used for renewable energy and that for farming as the exemptions cease when primary production is no longer the dominant income.
9 Clever farmers can create value with a Self Managed Super Fund strategy. Those who have income from a wind farm are subject to tax, however if it is in a superfund then it could be the case that the income is not subject to tax at all. This, of course, is a complicated area and the advice of an expert is essential for the best results.
10 Good law is common sense, and for the most positive experience and best returns farmers should maintain control their lawyer and land. The interest of landowners and developers should be balanced. Good communication is the key to a good deal of mutual benefit. If you have differences, it is much more productive to resolve differences through negotiation and not by “legal action”.