Big choices for tax write-offs on farm investments

Ag investment write-offs stir instant spending rush in bush

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Many farmers have rushed to take advantage of Canberra's economic stimulus initiatives to get businesses investing

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What started out a decade ago as a modest tax incentive to buy a few power tools or a farm computer has ballooned into some serious spending options this year as the federal government urges small businesses to go shopping.

Many farmers have rushed to take advantage of Canberra's economic stimulus initiatives designed to get businesses investing and helping the economy ride out the costly coronavirus pandemic.

Instant tax depreciation opportunities which allowed small businesses to spend up to $1000 on equipment back in 2011 have now blown out to a spending limit of $150,000, if you buy before June 30.

Alternatively farmers can opt to spend any amount before June 30 next year and claim a 50 per cent instant depreciation write-off.

If you're ready to spend up to $150,000 your choices now extend to some fairly worthwhile equipment - Richard Lewis, O'Connors Machinery

"We've seen a very strong response in the machinery industry, in fact some domestic equipment manufacturers and suppliers are having problems keeping up with orders," said the chairman of southern Australian dealership group O'Connors, Richard Lewis.

"If you're ready to spend up to $150,000 your choices now extend to some fairly worthwhile equipment - tillage implements, trailed sprayers or tractors up to about 160 horsepower (120 kilowatts)," he said.

"That's triggered quite a few tractor sales into the horticulture, viticulture, dairy and grazing industries, as well as activity from contractors and tradies looking at skid steer loaders and tractors with front end buckets."

Tax savings vary

The value of the instant deduction will depend on a farm business' assessable income, the value of the eligible asset acquired and the farm's relevant tax rate.

Although the machinery market was less active in regions hard hit by drought, particularly NSW, the temporary lift in the depreciation allowance ceiling would be particularly useful for those Victorian and South Australian grain growers who had enjoyed a good harvest and surging cereal prices in the past six months.

"They'll be looking for any tax break they can get," said Mr Lewis, who heads a Case-IH network with 10 dealerships spread from Bordertown in South Australia to north western Victoria and Grenfell in NSW.

Used gear sales lift

Demand for good second hand machinery had also jumped, spurred on by improved seasonal conditions across much of the eastern Australian grainbelt and the instant depreciation offer.

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Used machinery, farm vehicles or other equipment worth up to $150,000 qualify under the instant asset write-off, however second hand gear is not eligible for higher priced investments qualifying for the 50pc depreciation write-off.

"Our used machinery sales would be up about 30pc to 40pc on this time last year," he said.

"That's partly because people know they have a June 30 tax deadline and don't want to be waiting until later in the year for new gear like tractors to be imported or cropping equipment to be built."

June 30 deadline

Under current taxation rules the instant asset write-off opportunity reverts back to a $1000 investment limit for small businesses with less than $10m turnover after June 30.

The threshold was $30,000 for most of this financial year before the extra coronavirus stimulus incentives were announced in March.

Agribusiness specialist with accounting and advisory firm William Buck, Ben Trengove, said the federal government's stimulus package gave farmers a range of useful opportunities.

"For most people the previous $30,000 threshold was handy, but $150,000 now allows you to invest in some decent sized gear," he said.

"Most new farm utes cost more than $30,000, so this sort of purchase now falls within the increased threshold."

There may be no use rushing to buy new equipment before June 30 if your business income isn't taxable in the first place - Ben Trengove, William Buck Chartered Accountants

From a practical standpoint, the instant tax write off also appealed because it simplified a process which depreciated an asset over a long time period of tax submissions.

Importantly, thanks to increasing instant write-off opportunities in the past five years, farmers were familiar with the instant depreciation concept and the benefits it offered to help reduce taxable income in the same year they made a purchase.

Do your tax homework

However, farmers have also been urged to do their homework properly before splashing out on extra gear.

"There may be no use rushing to buy new equipment before June 30 if your business income isn't taxable in the first place," Mr Trengove said.

It was important to talk through tax planning considerations with an accountant first, as various strategies, including asset write-offs, superannuation management and farm management deposit options, may be used to reduce taxable income.

Ben Trengove

Ben Trengove

He said while many farm enterprises enjoyed strong income results in the past year, plenty had struggled with bad seasons and may not have a tax liability to worry about, or the spare cash to buy more gear.

Farmers also needed to be mindful any new investments must be "installed ready for use" by June 30.

"Given the disruption to supply chains of late, you need to be confident any order for that new ute or machinery will be delivered this financial year," he said.

Meanwhile, the government's decision to temporarily lift the qualifying limit to include medium sized enterprises with turnover up to $500m was a welcome break for agribusinesses such as traders and processors.

Many in these businesses could not previously participate because their turnover was too high, even though their profit margins may have been low.

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