Farmers have won a welcome extension on the popular tax deduction which can cut up to $20,000 from a primary producer’s taxable income multiple times.
However, rural accountants are wary farm loan repayments may get slightly more expensive if the nation’s big lenders make borrowers pay towards the new $1.5 billion a year bank levy announced in the federal budget.
A $1.5 million loan might see borrowers paying roughly $2000 extra a year if the big banks passed on a percentage of their levy costs to customers.
Unlimited tax deduction opportunities will continue to be available for farm gear purchases ranging from ag bikes to augers, welders, farm computers or sheep handling equipment worth up to $20,000 each.
Federal Treasurer Scott Morrison’s 2017 budget responded to pleas from the farm sector and regional businesses, extending the instant write-off opportunity for businesses with turnover of up to $10 million a year.
The asset investment write-off, introduced in Joe Hockey’s 2015 budget, was originally intended to end after this financial year.
“I’d be struggling to think of business client who has not taken advantage of this capital investment incentive in the past year,” said southern NSW accountant, Jason Croker, at RSM Australia in Albury.
“Many farmers who didn’t spend on new equipment during the drought years have used the opportunity to upgrade gear now they’ve got good cashflow coming in.
“If your taxable farm profit is, for example, $100,000 and you deduct the cost of a new $15,000 quad bike or sheep handler, you’ll pay less tax on an $85,000 farm profit.
“I’ve had clients with up to 10 items (worth less than $20,000) qualifying for the immediate tax write-off”.
Mr Croker said on balance it was “a pretty good budget for rural and regional Australia”..
The extended capital investment cost deduction decision was not complicated and would complement the ongoing full write-off available for the cost of drought proofing initiatives such as water infrastructure or investment in grain and hay storages.
Previously these costs were written off over a three year deduction period.
NSW Monaro based tax specialist with the Boyce accounting group, Kathy Kelly, noted even the efficiency of the farm office was benefiting from the tax rebates.
“Spending on computers for the business previously qualified for a $1000 deduction, but most decent computer upgrades cost more than that these days,” she said.
Banking sector responses to the budget’s new levy for institutions with liabilities of more than $100 billion – ANZ, Commonwealth, National Australia Bank Westpac and Macquarie – are being watched closely in the bush.
The levy is expected to raise $6.2b over four years, while new higher penalties are also being imposed for banks undertaking risky lending behaviour.
Based on back-of-the-envelope calculations by Goldman Sachs suggesting the levy may be offset by a 0.14 per cent rate lift across the mortgage books of affected banks, typical farm sector borrowers could be paying at a few thousand dollars more annually.
But Ms Kelly said it was too hard and too early to call.
Overall interest rates were also at historic lows, so any attempt by banks to pass on their extra costs was unlikely to be a significant impost to most borrowers compared with other farm costs.
“In the scheme of things I’d say farmers would probably be more worried about the impact of rising electricity and fuel costs than the possible flow-on impact of the bank levy,” she said
Mr Croker said the levy was “one to watch” but doubted if the big banks would risk alienating customers and giving a competitive edge to other rural lenders.
“I’d expect the big four would be more likely to prune back branch services or make other cost cuts than impose any obvious increase on their customers borrowing costs.”