There are some important considerations specific to rural property owners when it comes to end of financial year property tax requirements in the agriculture sector. As the end of financial year approaches again, proper planning and advice from the right specialists (financial advisors, accountants, valuers and others) can help maximise deductions, minimise tax liabilities and ensure compliance with ATO regulations.
Review your Deductible Expenses
There are many tax deductions that you may be entitled to unique to the agri sector. Make sure you are claiming all the deductions you are entitled to, minimising your tax liability. Always consult with an accountant or financial advisor familiar with your specific local tax provisions and incentives.
In Australia, deductible expenses include:
Depreciation: Immediate deductions can be claimed for the business portion of most depreciating assets if they cost less than the threshold at the time of purchase. There are also specific rules for immediate write-off for water facilities, fencing, and fodder storage assets.
Repairs, Maintenance, and Improvement Costs: Costs for repairs and maintenance of farm machinery, buildings, and fences are deductible. Improvements or alterations can sometimes be depreciated over their useful life.
Operating Expenses: Day-to-day operational costs like feed, fertilisers, chemicals, and fuel for farm machinery are deductible.
Farm Management Deposits (FMDs): This scheme allows farmers to set aside pre-tax income in good years, which can be drawn upon in lean years. Interest earned on these deposits is taxable.
Water Facilities and Landcare Operations: Deductions are available for the cost of water facilities, and certain land care operations on land used in a farming business.
Professional Advice: Costs for legal, financial, and tax advice related to farm management and operations are deductible.
Insurance Premiums: Including crop and livestock insurance.
There are many schemes and incentives aimed at sustainability and environmental management, like deductions for environmental protection activities and investments in energy-efficient equipment.
Organise your Financial Records
Maintaining accurate and up-to-date financial records not only helps in managing day-to-day operations efficiently but also plays a role in strategic planning, securing financing, and ensuring compliance. Good record-keeping provides you with a clear picture of your business’s financial health, facilitating better decision-making and enhancing your ability to respond to market changes and opportunities.
Invest in reliable accounting software tailored to your business size and sector. Modern software automates most aspects of record-keeping, from tracking sales and expenses to generating financial reports. Cloud-based options ensure data is backed up and accessible from anywhere.
Keep all business transactions separate from personal ones to simplify record-keeping and ensure personal expenses are not mistakenly claimed as business deductions.
For equipment purchases or sales, keep records of the make, model, and serial number, along with the purchase or sale agreement.
Review (or update) your Tax Depreciation Schedules
Tax depreciation allows business owners to allocate the cost of tangible assets over their useful life, reflecting the asset's consumption, wear and tear, or obsolescence over time. This depreciation is recognised as an expense that can be deducted from your business’s taxable income, effectively reducing the amount of tax payable.
Depreciable assets can include:
Machinery and equipment: Tractors, combines, ploughs, processors.
Buildings and structures: Sheds, silos, greenhouses, fences.
Irrigation systems: Pumps, pipes, sprinklers.
Vehicles: Trucks, utility vehicles, cars used in farm operations.
Understanding how tax depreciation works enables agri business owners to plan for the acquisition and replacement of assets more strategically and helps in accurately reporting the profitability of the farm by accounting for the diminishing value of assets over time. This ensures that financial statements reflect the true cost of using these assets in generating income.
Consulting with tax depreciation professionals who understand the nuances of agricultural assets and tax regulations in the relevant jurisdiction is crucial for maximising the benefits of tax depreciation.
Assess Your Capital Gains Tax (CGT) Implications
Capital Gains Tax (CGT) is a tax on the profit made from selling significant assets (property, machinery, vehicles, water entitlements etc), calculated as part of your income tax. The specifics of CGT can vary by country and state.
In Australia, there are specific CGT concessions available to small businesses, which can also apply to agricultural enterprises. These concessions are designed to reduce or eliminate the CGT on the sale of business assets, under certain conditions. An experienced local accountant can help you to understand the concessions available for your business.
Get an expert property and asset valuation
Agri valuations play a crucial role in determining the taxable value of your assets to ensure a fair tax assessment. Our experienced team can help assess the value of various taxable assets, such as land, buildings, equipment, and livestock.
Factors such as soil quality, location, accessibility, water rights, and potential uses are all included in the assessment to ensure that owners are taxed fairly based on the productive capacity and potential income generation of the land.
Early preparation for the end-of-financial-year is key for agribusiness and farming property owners. A current and thorough valuation of your property and assets, by an experienced local property valuer, allows you to lay down a well-informed foundation. Coupled with proficient organisation of financial records, thorough scrutiny of depreciation schedules and contemplation over tax deductions as well as incentives, you'll be poised to amplify your tax returns and have peace of mind your legislative obligations are met.
Our specialist QS Team can also review previous tax depreciation reports prepared for your property and, if required, update to allow for new plant items or additional buildings / structures to be depreciated.
Reach out today to partner with our expert valuers on all your agribusiness property valuation, tax depreciation and advisory needs.
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DISCLAIMER
This material is produced by Opteon Property Group Pty Ltd. It is intended to provide general information in summary form on valuation related topics, current at the time of first publication. The contents do not constitute advice and should not be relied upon as such. Formal advice should be sought in particular matters. Opteon’s valuers are qualified, experienced and certified to provide market value valuations of your property. Opteon does not provide accounting, specialist tax, investment or financial advice.
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