RSM Australia

Lowdown on tax concessions

This is the time of the year when farmers get their last chance to reduce any tax liabilities before it is simply too late. With fantastic cattle prices, strong demand for sheep meat and finally wool prices heading north, suddenly livestock producers have a tax problem. Admittedly, grain yields and prices were lower than the previous year, but many farmers sold carry over grain in late winter, early spring 2013.

So the questions are:

  • has your accountant been in contact with you?
  • do you know how much tax you could be paying next March?
  • how are you going to save tax in the next 20 days or less?

Rather amazingly, the federal government in football parlance, has given us a free kick and the benefit of a 50 metre penalty. The tax changes announced on the 12th May are some of the most generous tax deductions for farmers for more than 25 years.

Farmers and small business will be able to claim an immediate tax deduction for each asset that costs less than $20,000 (new or second hand), net of GST credits to the extent that the asset is used for tax deductible purposes after 12th May 2015. If the farm or small business has an annual turnover of more than $2m, this concession is not available.

But wait, there's more. All farmers can fully deduct the cost of conserving or conveying water and fencing in the year they are purchased.  In addition the cost of fodder storage assets such as silos and sheds can be claimed over three years. Fodder storage covers fodder for both animal and human consumption. Hence a shed to store canola would qualify for the three write off. 

On the other hand when buying a farm with existing water assets, no tax claims would be available if the previous owner had previously claimed tax deductions for those water assets.

The original start date for fodder storage and water expenditure was 1 July 2016 but regardless of the annual turnover, the start date will now be the 12th May 2015.

It is also possible to acquire certain non fodder storage assets before the 30 June 2015 that cost more than $20,000 and claim the full cost over three years.  Keep in mind the $20,000 write off will reduce to $1,000 after 30 June 2017.

All depreciation claims are based on the asset being installed ready for use by the end of a particular financial year. This can be a very significant factor. For instance, where a machine costs $19,000 is paid for in June but delivered in the following July, the deduction would not be available until the following financial year. Conversely, shed materials purchased in February 2015 and the shed being erected in June 2015 would result in a larger depreciation claim than was originally anticipated.

At the date of this article, these budget announcements had not passed both houses of Parliament. Also the cashflow and tax benefits that may be available will be subject to your own particular circumstances.

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