Over the years the Government has recognised the important role that primary producers play in contributing to the national economy, and the differing nature of their business compared to most. As such they have a number of tax initiatives to help those on the land. These can generally be broken down into three main areas: tax offsets, tax deductions and tax concessions.
Tax offsets are effectively a rebate. That is they directly reduce the amount of tax payable, not the amount of your taxable income. There are a variety of tax offsets available.
The main ones for consideration are:
The Carbon Farming Initiative (CFI)– tax offsets are provided for farmers and land managers to earn carbon credits by reducing greenhouse gas emissions and storing carbon in vegetation and soils. These carbon credits can also be sold to businesses and individuals that want or need to offset the greenhouse gas emissions from their business.
Conservative Tillage Offset– a 15% refundable tax offset for farmers using Conservation Tillage seeders that sow seeds and fertiliser into untilled soil during a single pass to reduce soil disturbance. 2014 is likely to be the final year for this offset as it will likely cease as part of the ‘Repeal of the Carbon Tax’ legislation.
More information on the requirements for the above offsets is available on the Department of Agriculture website.
Tax deductions reduce the amount of your taxable income, and therefore your tax liability.
The main deductions unique to primary producers are:
Non-commercial Business Losses– unlike most business activities, primary production businesses can deduct a business loss in the year it occurs against other assessable income, so long as that other assessable income is less than $40,000.
Accelerated Depreciation– normal Small Business Entity (SBE) depreciation rules may apply, in addition primary producers are entitled to claim a deduction for water facilities over three years, horticultural plants and grapevines at an accelerated rate, an immediate deduction for capital works relating to Landcare operations, and be able to claim a deduction for the connection of electricity and telephone lines over ten years (normally a non-depreciable capital addition.)
Goods Taken from Stock– any livestock or goods produced that are taken for your own private use (i.e. a lamb killed for rations) needs to be included as assessable income as if it had been disposed of at its cost price.
Farm Management Deposits (FMD)– operating similarly to a bank account, any money deposited into a FMD is claimable as a deduction in the year of the deposit up to a $400,000 limit alternatively any money withdrawn from a FMD will be included as assessable income in the year it is withdrawn.
Tax concessions relate to a number of measures available to provide relief for primary producers such as deferrals of income.
Tax Averaging– tax averaging allows primary producers to smooth out taxable income over five years to allow for good and bad seasons. It allows for a more consistent taxable income each of the five years rather than paying the top marginal rate in one income year only to have losses the following income tax year.
Forced Disposal or Death of Livestock– you can elect to spread the profit from a forced disposal or death over five years, or to reduce the cost of replacement livestock.
Insurance Recoveries– where there is an assessable insurance payment received, you can elect to include the assessable income in equal instalments over five years.
Double Wool Clips– where double clipping is required in one income year due to flood, fire or drought, you can elect to defer the profit from the advanced clip to the next income year.