Operating an agribusiness can be tough. From extreme weather conditions to commodity price variation, farmers face an array of challenges each season. Often these challenges cause financial strain and significantly impact bottom line.
Claiming primary production tax deductions can help farmers during times of financial hardship by reducing their tax liabilities.
Like owners of other income-producing properties, farmers are eligible to claim deductions for structural and fixed assets, and depreciation for any plant and equipment assets found in an agribusiness.
The general depreciation principles apply to most depreciating assets used in primary production. However, there are specific tax deductions available to help those in the agriculture industry. For example, water facilities, fencing and fodder storage assets all have industry specific depreciation rates.
Primary producers can claim an immediate deduction for expenses incurred primarily for conserving or conveying water for an agribusiness. This can apply to water facilities such as dams, tanks, bores, irrigation channels and pumps. Both landowners and tenants are eligible to claim these immediate deductions in the year of the expense if the item was purchased after 12 May 2015.
Primary producers can also claim an immediate deduction for the cost of fencing if it’s used primarily for agricultural operations and was acquired after 12 May 2015. If fencing was purchased before then, farmers can deduct the asset’s cost over its relative effective life.
Farmers are also eligible to claim a deduction for the total cost of a fodder storage asset if the expense was incurred on or after 19 August 2018. Primary producers can claim this deduction if the expense was incurred prior to this date, but the asset was installed and ready for use after 19 August 2018. In addition, assets installed before 19 August 2018 but after 12 May 2015 can be claimed over three years.
Agribusiness owners can only claim a deduction under primary production rules if no one else has deducted an amount for the asset under these conditions. However, some farmers may be eligible to claim deductions for second hand assets under the instant asset write-off rules as a small or medium business.
The federal government recently extended eligibility to claim instant asset write-off concessions to businesses with revenues of less than $50 million and increased the threshold from $25,000 to $30,000 until 1 July 2020.
Depreciation regulations vary for agribusinesses, to ensure your primary production tax deductions are maximised and lodged correctly, call Brendan McKenzie, Senior Manager at AFS on 03 5443 0344. Alternatively you can speak to a BMT expert on 1300 726 728.
CASE STUDY: $1.45 million sheep farm depreciation
Let’s look at some of the plant and equipment assets that were found for the owner of a sheep farm purchased for $1.45 million.
|Fuel storage tanks||$7,976|
|Solar powered generating systems||$33,824|
|Total assets listed||$269,525|
|Assets not listed||$98,889|
Overall, BMT found $368,414 in plant and equipment assets that could be claimed at the appropriate depreciable rate. In addition to these items, $175,669 in capital works deductions can be claimed over the life of the property by the owner of the sheep farm.
Article Provided by BMT Tax Depreciation. Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation. Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia wide service.