It’s no secret that Australian farmers are experiencing a tough set of circumstances right now. While campaigns like Buy a Bale and Parma for a Farmer are fantastic, there are a number of tax tips for farmers to be aware of as well specially enacted concessions available.
These altered tax rules are intended to directly support rural Australia and farming communities until conditions improve. This list of strategies and tax tips for farmers can help primary producers manage their own situation and cash flow better even while times are tough.
Instant Asset Write Offs
A few years ago the Federal Budget introduced “accelerated depreciation” measures, later rebranded to the “small business instant asset write-off”. The measure applies to all small businesses, not just farmers. It allows them to claim the cost of assets for their business as an immediate tax deduction. This differs to the standard situation where you claim depreciation over a period of several years.
There are a few conditions that a farmer or primary producer must satisfy in order to qualify:
- Each asset purchased must cost less than $20,000. This price is for each asset, not the total. A farmer who purchases two replacement trailers and a quad bike each worth $15,000, can claim a full deduction for each, even though the total of the purchases is above $20,000.
- The total (aggregated) turnover of the business must be less than $10 million. The turnover test was previously less $2 million but was revised upwards after consultation with many business associations.
Specific Farming and Primary Producer Asset Write Offs
Even when the rain isn’t falling, fences need maintenance and fodder storage assets need to be replaced. In recognition of this, the most recent Federal Budget changed the depreciation rules with reference to fencing assets and fodder storage assets. This change allows the full amount to be deducted immediately, rather than depreciated and claimed over time.
The effect of this change is that greater benefits apply to primary producers up front, rather than being spread over several years.
Here are the specifics…
If a fencing asset was constructed at any time after 12 May 2015, the whole amount of the expense can be deducted in the income year that the expense was incurred. Fodder assets, purchased on or after 19 August 2018 follow a similar rule. The fodder storage rules are broad and can apply to silos, hay sheds, grain storage sheds, above ground bunkers and liquid feed supplement storage tanks.
Tax Income Averaging
One of the greatest benefits in the Australian tax system for farmers is the ability to average out income tax over a period of five years. That means that a poor year in year one offsets a great year in year four. The farmer does not have to pay a huge tax liability in year four.
Farmers can opt out of the income averaging system if they so choose, by notifying the their tax agent who can contact the ATO for them.
When the returns from primary production are low, the incentive to undertake maintenance and landcare operations is lower as well. This is often because there is less cash flow to pay for these activities.
However, if there is a need to undertake these activities, a deduction can be claimed for:
- Erecting fences to separate different land classes. In response to drought conditions which create a need for a changed land management plan.
- Improvements to land, such as constructing a levee.
- Preventing land degradation.
- Works to improve drainage control.
- Works to improve or control salinity.
- Activities related to limiting, eradicating or exterminating both plant and animal pests.
In addition to landcare deductions, there are also a number of tax deductions available for primary producers if they choose to sell their farms.
Deferred Taxation of Forced Disposal of Livestock
One of the most confronting aspects of drought is the forced disposal of livestock. This can often be at below market prices because of a shortage of resources or fodder. However, the tax system still accounts for the proceeds of these sales as “income” for tax purposes.
To fix this, farmers can choose to spread the profit from the forced disposal of livestock across a five-year period. Another option is to use the profits to reduce the cost of any replacement animals purchased in the five years after the forced disposal.
The deferral provisions reduce how much tax farmers pay overall by spreading income across multiple years. A farmer can also be eligible if declared drought, flood or fire destroys either pasture or fodder. This is possible if farmers use the proceeds of the sales to maintain breeding stock or replace the livestock when conditions improve.
Are you a primary producer and unsure if these tips and concessions apply to you? No problem, get in touch with us on [email protected] or 1300 693 829. Our team of expert accountants will be happy to help you out.