Tax Facts for Farmers

Photo by Judy Beth Morris on Unsplash

Farmers in Australia can benefit from several tax concessions and strategies to reduce their tax burden. Here are some key tax tips that Australian farmers should consider:

1. Farm Management Deposits (FMDs)

Farm Management Deposits allow farmers to set aside pre-tax income during profitable years and access it during less profitable years. This can help smooth out income fluctuations.

• Contribution Limits: As of 2023-24, farmers can deposit up to $800,000 per individual, or $1.6 million for a couple.

• Tax Benefits: Contributions are tax-deductible in the year they are made, and the interest earned on FMDs is taxed at a concessional rate (usually lower than your marginal tax rate).

2. Immediate Deduction for Depreciable Assets (Instant Asset Write-Off)

Farmers can write off the full cost of eligible depreciable assets in the year they purchase them, which can provide immediate tax relief.

• Thresholds: The threshold for instant asset write-offs has changed over time, and there are different limits based on business turnover and asset types. For businesses with a turnover of less than $10 million, the immediate write-off threshold for an individual asset is $20,000 (this may vary based on the current year).

Check if the government has any current concessions available for small or medium-sized businesses.

3. Primary Production Concessions

The primary production tax concessions allow farmers to reduce their taxable income. This includes:

• Income Averaging: Allows farmers to average their taxable income over five years to help manage income volatility. If a farmer's income is higher in one year and lower in another, this can reduce their tax liability.

• Farm Management Deposits: Deposits made into the FMD scheme can also help spread income over multiple years, assisting with this averaging.

4. Tax-Effective Financing

Consider structuring any farm-related borrowings in a tax-effective way. The interest on loans used for agricultural purposes (e.g., for buying land, equipment, or paying operating costs) is generally tax-deductible.

• Capital Gains Tax (CGT) Exemption: If you sell farm assets (such as land), you may be eligible for CGT exemptions, especially if the property has been used for farming for an extended period. Consult with your tax advisor about eligibility.

5. Superannuation Contributions

Contributing to superannuation is an effective way to reduce your taxable income. Farmers can claim a tax deduction for contributions to their super fund, which reduces their taxable income for the year.

• Farmers over 65 can contribute up to $110,000 per year (subject to work test and contribution caps).

• The concessional contribution cap for individuals under 50 is $30,000 per year (for the 2024-25 tax year). If you're over 50, you may have a higher cap.

6. GST Exemption for Primary Producers

If your farm's income is below the GST registration threshold ($75,000), you may be eligible to remain exempt from GST. However, you must still keep records and lodge tax returns, even if you're not required to charge GST.

7. Offset for Drought or Natural Disaster

Farmers who are impacted by a drought or natural disaster may qualify for certain offsets or relief measures. The Australian government often provides targeted tax breaks and financial support, such as:

• Drought Relief Programs: These programs may offer grants, subsidies, or tax deferrals to affected farmers.

• Disaster Recovery: Special tax relief may apply to affected businesses, including deferral of income tax liabilities and additional deductions for repairs and rebuilding.

8. Tax Planning and Record-Keeping

Efficient record-keeping and strategic tax planning can make a big difference in reducing your tax bill. Some tips include:

• Keep Good Records: Document all farm expenses, income, and assets, including purchases of equipment, fuel, and other operating costs.

• Plan for Asset Purchases: If you’re planning to make a large purchase of farming equipment or property, time the purchase to maximize your tax deductions in the most beneficial financial year.

• GPP is here to help: Our director, Tim Parnell, has vast experience with the agricultural sector and can help you navigate the complexity of tax concessions and deductions that may apply to your situation.

9. Capital Gains Tax (CGT) Exemptions

For farmers, selling land or other farm assets may trigger CGT. However, there are various exemptions and relief measures that can reduce or eliminate this liability:

• Small Business CGT Concessions: Farmers may be eligible for CGT relief under the small business CGT concessions, especially if they sell land or assets used in a business that qualifies as a "small business" under tax rules.

• Primary Production Exemptions: Certain assets used for primary production, like farmland, can be eligible for CGT relief or exemptions, depending on how long they’ve been held and the use of the land.

10. Taxation of Livestock Sales

Livestock are a significant asset for many farmers, and it's important to understand how the sale of livestock is taxed:

• Livestock sales are generally taxed as part of your income under the normal rules. However, special rules for trading stock and valuation may apply, allowing you to adjust the taxable value of your livestock inventory.

• If you're breeding or selling livestock as part of your business, keep detailed records and consult your accountant at GPP on how best to manage and report income from livestock sales to optimize your tax position.

Farmers: Food for Thought …

The tax system for farmers in Australia is designed to recognize the unique challenges they face. To maximize your tax benefits, it's important to stay informed about available deductions and concessions, and to engage with your GPP tax advisor who understands agriculture-specific tax rules.

Additionally, tax laws can change from year to year, so it’s worth reviewing your tax strategy annually to ensure you’re taking advantage of any new opportunities.