Instant write-offs fuel farm spends, but here's the small print

Instant write-offs fuel farm spends, but here's the small print

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SPENDING UP?: Know what the instant write-off provisions mean. Image courtesy of Atlex Stockyards.

SPENDING UP?: Know what the instant write-off provisions mean. Image courtesy of Atlex Stockyards.

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The ins and outs of accelerated depreciation provisions

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ACCELERATED depreciation provisions are combining perfectly with high livestock prices to set the scene for investment in strengthening farming businesses for the future.

However, tax deductibility alone doesn't make spending money on something a good investment and knowing the ins and outs of the deal are vitally important, accountants and consultants say.

The instant asset write-off offer made in last October's Federal Budget was a significant extension of provisions already in play.

The write-off, originally capped at $30,000, had already been extended to $150,000 in March last year, with the removal of an upper limit on asset expensing effective from early October.

This concession will run until June 2022. It covers new or second hand assets for any business with a turnover under $50 million.

The government's thinking was to stimulate regional economies and also encourage investment back into individual farm business. Feedback is those supplying equipment in the bush certainly have long lists of orders to fill.

ALSO SEE:How to gauge what's worth your money on farm

Paul Rogan, director with primary production accountancy specialists RSM Australia in Ballarat, said the original extension to $150,000 covered most plant items farmers were buying but not the big-ticket items.

Paul Rogan, from RSM Australia

Paul Rogan, from RSM Australia

Mr Rogan pointed out the provisions only affect the timing of the tax deductibility, not the total over time.

If an asset purchase is depreciated in full this financial year, there will be no depreciation, and therefore no tax deduction to come in following years.

Farmers and business owners need to be aware of the potential for a tax liability to result from any future sale of fully expensed plant items, Mr Rogan said.

"It is bringing forward all the deductions to one year, where assets might have a useful life of ten years or longer," he said.

"Small business pools have given producers tax relief on asset trades for a number of years when replacing important farm machinery. After June 2022, with asset balances fully written off, we will likely have the situation where an asset trade or upgrade will create extra taxable income for the business even if replacing the asset," Mr Rogan said.

He feels producers will be keen to take up this generous concession but will look more closely at the tax impact of upgrading once the concession finishes in 2022.

"Producers will need to look at other options to minimize tax in future years," he said.

In the short-term, the provisions were likely to drive investments on upgrades, which in turn equate to productivity and efficiency gains, and in some cases environmental benefits, he said.

Opt out

Producers should be aware there are options to opt out of the instant write-off.

"There are some examples where businesses may not want the full dedication for all assets this year and it is possible to opt out where a disadvantage is caused," Mr Rogan said.

For example, this may occur where the instant asset write-off for large items purchased causes a business to make a loss this financial year and application of the concession would waste some of the tax benefits.

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