Farmers! Harvest a great outcome with H&R Block
There are lots of tax rules you should know about if you’re a farmer, some of them specific to primary producers. H&R Block can help you work out which ones apply to you. Here’s a summary of the key points for primary producers:
Small Business Tax cut
Subject to legislation, the rate of income tax for small companies has fallen to 27.5% from 1 July 2016. Shareholders still receive imputation credits at the full 30% rate on dividends paid by small companies.
The definition of a small company is also set to change. Subject to legislation, from 1 July 2016, a small company is one with an aggregate turnover of less than $10m (previously, it was $2m).
Individual taxpayers with business income from an unincorporated business that has an aggregated turnover of less than $5m will be eligible for a tax discount. The discount is 8% of the income tax payable on the business income earned and will be capped at $1,000 per individual per income year. The discount will be delivered to the taxpayer as a tax offset.
Accelerated deductions for capital assets
From 1 July 2016 (subject to legislation), all businesses with an aggregated turnover of less than $10m can immediately deduct the cost of capital assets they acquire for use in the business and which cost less than $20,000 (previously available only to businesses with a turnover of less than $2m).
Primary producers can immediately deduct capital expenditure on fencing and water facilities, such as dams, tanks, bores, irrigation channels, pumps, water towers and windmills. They can also depreciate all capital expenditure on fodder storage assets such as silos and tanks used to store grain and other animal feed over 3 years.
CGT roll over relief for changes to entity structure
From 1 July 2016, small businesses are allowed to change their legal structure (for example, from partnership to company) without attracting a CGT liability at that point.
This allows primary producers to even out income across years so their tax liability is more aligned with that of a taxpayer on a stable income.
Non-commercial business losses
An exception to the non-commercial loss rules allows net losses from certain primary production business activities to be claimed in the year incurred. If you have a loss from a primary production business activity and your assessable income from sources not related to that particular business activity is less than $40,000 in an income year, you can claim your loss in that income year. The $40,000 excludes any net capital gains.
Immediate deductions for landcare operations
Such as drainage work to prevent salinity, erosion control activities or erecting fences under an approved management plan.
Ten-year write-off for electricity connections and telephone lines
These are far more expensive to install in rural areas compared to urban areas.
Accelerated deduction for horticultural plants
Including immediate deductibility for plants with an effective life of fewer than three years (including some grapevines).
Deferral of profit on the forced disposal or death of livestock
For example, sale due to drought, fire or flood;
Which allow an assessable insurance recovery to be spread in equal instalments over five years.
Deferral of profit on double wool clips
If, due to fire, flood or drought, a primary producer is forced to undertake an early shearing and therefore sells two wool clips in one income year, the grower can elect to defer the profit on sale of the second clip to the following year.
The wine producer rebate scheme
Entitles wine producers to a rebate of 29% of the wholesale value of eligible domestic sales up to a maximum of $500,000 each financial year. The producer rebate scheme applies to all products subject to Wine Equalisation Tax, whether they're sold by wholesale, retail (at the cellar door, by mail order or internet), or applied to own use (for example, wine used for tastings or promotions).
Farm management deposits (FMDs)
Allow primary producers to carry over income from years of good cash flow and draw down on that income in years when they need cash. This enables primary producers to defer the income tax on their primary production income from the income year in which the deposit is made until the income year in which the deposit is repaid. This scheme allows you to make FMD’s and claim a tax deduction for those FMDs you make in the income year you made them provided the FMD is not withdrawn within 12 months.
If you withdraw an FMD, the amount of the deduction you claimed is included in your assessable income in the income year the deposit is repaid to you.
The taxable non-primary production income threshold is $100,000. This means that a person who receives income from non-primary production sources of up to $100,000 in a financial year is able to deposit primary production income into an FMD and claim a corresponding tax deduction. A primary producer may hold up to a maximum of $800 000 in FMDs.
Primary producers affected by natural disasters can withdraw their FMDs within the first 12 months of deposit without losing any claimed taxation benefits if they have received primary producer Category C recovery assistance under the Natural Disaster Relief and Recovery Arrangements. From 1 July 2016, primary producers affected by drought can withdraw their FMDs before 12 months without losing any taxation benefits, if they:
- made their FMD in the previous financial year, and
- have held their FMDs for at least six months, and
- can demonstrate that an area of their farming property has been affected by a rainfall deficiency for six consecutive months. To be eligible, the rainfall must be within the lowest five per cent of recorded rainfall for their property for that six-month period.
From 1 July 2016, FMDs can be used to offset the interest costs on primary production business debt.
Selling the farm
You may make a capital gain or capital loss when you sell (or otherwise cease to own) a working farm. Capital gains are subject to capital gains tax (CGT), with a discount for individuals and trusts. If your home is part of the working farm, you may be eligible for a partial main residence exemption. There are also concessions for small businesses with an aggregated annual turnover of less than $2m which meet certain eligibility criteria. These are:
- Small business 15-year exemption - If your business has owned the farm for 15 years and you are aged 55 years or over and are retiring, or if you are permanently incapacitated, you may not have an assessable capital gain when you sell the farm.
- Small business 50% active asset reduction - You may be able to reduce the capital gain on the disposal of your farm by 50%.
- Small business retirement exemption - A capital gain from the sale of your farm may be exempt up to a limit of $500,000 if you retire. You may also be able to access this concession if you are under 55 provided you pay the exempt amount into a super fund.
- Small business rollover - If you sell a small business asset, you can defer your capital gain until a later year if you rollover the gain into a replacement asset.