End of financial year: Tax tips for primary producers

From farm management deposits and super contributions, to averaging abnormal income and maximising asset write-offs, consider these strategies before lodging this year’s tax return.

The Government’s new temporary full expensing measure has replaced the instant asset write-off, and it pays to understand what the measure means for your farming business.

As tax time approaches, there are plenty of strategies farmers can use to level cash flow and maximise tax benefits.

Albury accountant Terri Briese says the most pressing jobs to do before June 30 are make contributions to superannuation or farm management deposits accounts.

“Accountants can use a whole lot of great strategies for year-end tax planning, but it really comes down to cash flow,” said Ms Briese, co-principal of Briese Janissen and Associates.

“The farm management deposits and super are the two items that must be paid in cash by June 30. The way super is done, we say that needs to be paid by June 10 to make sure it is in by the 30th.”

Ms Briese said older generations were more familiar with the way FMD accounts worked, while younger producers were increasingly turning to superannuation accounts.

She said it was worth checking deposits made in previous years, because annual super caps of $25,000 for 2019, 2020 and this financial year were allowed to be paid in subsequent years.

“For 2019 and 2020, if you haven’t used your $25,000 cap in those years, for example you’ve put in $10,000 in 2019 and $10,000 in 2020, you essentially have $15,000 per year cap that you can put in this year,” she said.

“Because this year has been particularly good from a trading perspective, there is an additional $30,000, plus the super from this year, that you can claim.”

The same June 30 deadline applies for contributions to FMDs, which are designed to help farming businesses even cash flow peaks and troughs, often caused by seasonal conditions. Producers should also consider adjusting their trading structures, averaging abnormal primary production income and maximising instant asset write-off deductions before tax time.

Ms Briese said new rules came into effect about a year ago that made it much easier for small businesses to change trading structures.

“In the old days, it was very difficult to move from a partnership to a family trust, for example,” she said.

“There was a whole lot of tax compliance. Those rules have now changed.”

She said an accountant could provide advice about the tax-rate benefits and drawbacks for individual circumstances.

Tax treatment of abnormal income, including disaster relief payments, profits from forced disposal of livestock or insurance payments, was also important to understand.

“It is a tax rule called abnormal receipts or drought referral,” Mr Briese said, explaining that averaging rules were applicable not just to drought-hit operations, but also producers who had been forced to sell livestock or received insurance payouts due to fires or floods.

“The tax office has a rule that you can average the profit for that sale, or payment, over five years,” she said. “It means you don’t get hit in one year. This is particularly relevant around here, because of the fires we’ve had.”

This year’s biggest tax-rule changes were the instant asset write-off increases, followed by the Federal Government’s temporary full expensing measure.

First, the instant asset write-off threshold increased from $30,000 to $150,000 per asset, for purchases made by December 31, 2020. Then, a new temporary full expensing measure was introduced and updated in the most recent budget.

The measure means eligible businesses can invest in new machinery or equipment, or make improvements to existing assets, and write off the depreciation without a cap until June 30, 2023.

“Really for this year, the big ticket items for primary producers are the immediate write-offs,” Ms Briese said.

“One of the issues we’ve found, because of COVID, is supply of plant and equipment has been horrendous.

“To buy your header is taking six months, hence the reason the Government extended the offer.”

The eligible new assets must be first held, and first used or installed ready for use for a taxable purpose, between 7.30pm AEDT on October 6, 2020 and June 30, 2023.

Businesses can access temporary full expensing if their aggregated turnover is less than $5b, and they can claim the deduction when lodging their 2020–21 or 2021–22 tax return, as applicable.

It also pays to know that deductions apply to more than just machinery.

“The big thing for farmers is you can write off your farm sheds,” Ms Briese said.

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