Primary-Production

Tax Planning for Primary Producers

‘End of financial year’ is a big deal for us accountants. With the intensity of the annual budget, tax lodgement due dates, and FBT deadlines all easing towards the end of June, we’re well and truly ready to relax a bit … maybe even welcome in the new financial year with a wild office party and NFY-eve countdown…

The other thing we love doing around this time of year is tax planning!

And the last few federal budgets have included some serious concessions for primary producers. We’ve listed below a few of the key tax planning opportunities for primary producers, and outlined some of the changes that have been made over the past few years.

Up-front deductions for assets purchases

Many primary production entities can now get an upfront deduction for asset purchases that were previously treated as capital, including:

  • Qualifying water facilities, such as pivot irrigators and water storage infrastructure. Previously this was deductible over 3 years. Note that second hand water facilities generally do not qualify for this concession.
  • Capital fencing assets. New fencing and improvements to existing fencing were previously treated like most other capital purchases and deducted over several years.
  • Fodder storage assets, except if the expenditure relates to a stockyard, pen or portable fence.

While the tax benefit of a business purchase should always be a secondary consideration to the commercial benefit, many farmers might find it worthwhile bringing forward asset purchases of the above items to secure the tax benefit for the 2018 financial year.

Farm management deposits (FMDs)

FMDs are a way for qualifying primary producers to smooth out their taxable income, and therefore their tax, over several years.

When a primary producer has a profitable year, they can invest excess funds into an FMD and claim a deduction for the whole amount of the deposit (provided it is deposited for more than 12 months). Then, in a future year when the funds are needed – perhaps because of a loss year and a bad season – they can withdraw the deposit and this is deemed to be assessable income in that year.

The deposit needs to be made into a registered FMD bank account (offered by most of the major banks) and these generally attract a conservative interest rate.

More recent changes to FMDs include an increased limit of up to $800,000 (previously $400,000) that can be held within FMDs at any point in time, plus the ability for FMDs to be made into qualifying loan offset arrangements.

Read more about recent FMD changes in our earlier blog: Farm Management Deposit scheme changes – what they mean for Tasmanian farmers

Small Business Entity (SBE) Concessions.

SBE concessions aren’t limited to primary producers, but the turnover threshold for this has now increased to $10m (previously $2m), meaning a lot more businesses are now eligible for these concessions. SBE concessions can be substantial for some businesses and may include the ability to:

  • Claim an immediate deduction for most plant and equipment purchases below $20,000 (currently in place until 30th June 2018, but likely to be extended to 30th June 2019).
  • Use special SBE pools to calculate depreciation deductions. These include (normally increased) depreciation rates of 15% in the year for purchase, and 30% for each year owned thereafter.
  • Claim up-front deductions for most prepaid expenses for items prepaid less than 12 months in advance. Non-SBEs cannot generally claim deductions for prepaid insurance etc until the policy period has been consumed.
  • Use the Small Business Restructure rollover to transfer business assets into new and more tax effective structures.

What now?

Contact one of our advisers to see if you are eligible for, and would benefit from, any of these opportunities (maybe not on the 1st of July – we might still be recovering from that wild end-of-financial-year party…)

Note that the above summary is general in nature and is not intended as tax or financial advice. The above concessions have various eligibility requirements and restrictions and you should check your specific situation with a qualified accountant and/or financial adviser before relying on the above.