Agribusiness is satisfying but tough. Farmers often experience times of financial hardship due to circumstances out of their control.
Droughts, floods and commodity price fluctuations can all dramatically affect a farmer’s bottom line each season.
But agribusiness isn’t just about the season. It’s about long-term planning and making decisions now that will produce results in the future.
Claiming depreciation is just one of the ways farmers can prepare for a more sustainable agribusiness.
The Australian Taxation Office (ATO) governs legislation that allows owners of any income-producing property to claim depreciation every financial year.
These deductions can help boost a farmer’s cash flow and alleviate the pressure of farming during an unforgiving season. The additional funds you receive at tax time can then be used to buy more stock or cover any outstanding expenses you need to pay.
So, what is depreciation and are you eligible to claim it?
Depreciation for agribusiness
Depreciation is a tax deduction for the gradual wear and tear of an income producing building and its assets over time.
It’s often missed by agribusiness owners because it’s a non-cash deduction, meaning you don’t need to spend money in order to claim it. In fact, research has shown that 80 per cent of owners are missing out on the depreciation deductions they’re entitled to.
A deduction can be claimed for any building structure via capital works deductions and depreciaiton can be claimed for the plant and equipment assets.
Plant and equipment assets refer to items which can be easily removed from the property and have a limited effective life as set by the ATO.
While most fixtures and fittings can be depreciated following standard procedure, certain assets used in agribusinesses must be calculated using special rules. These assets are as follows.
Water facilities used to conserve or convey water
Primary producers can fully deduct capital expenditure on a water facility if the expense was incurred on or after 7:30pm AEST on 12 May 2015. Primary producers fully deduct the expenditure in the income year in which they incurred it. The total deduction cannot be more than the amount of the capital expenditure.
No deduction is available for capital expenditure incurred on acquiring a second-hand commercial water facility unless you can show that no one else has deducted or could deduct an amount for earlier capital expenditure on the construction, manufacture or previous acquisition of the water facility.
The previous UCA (uniform capital allowance system) rules of depreciation apply where expenses were incurred prior.
The cost of capital expenditure of fencing assets can be fully deducted if the expenditure was incurred at or after 7.30pm (AEST) on 12 May 2015. The total deduction cannot be more than the amount of the capital expenditure.
The term ‘fence’ takes its ordinary meaning and includes an enclosure or barrier, usually of metal or wood, as around or along a field or paddock. The term ‘fence’ extends to parts or components of a fence including, but not limited to, posts, rails, wire, droppers, gates, fittings and anchor assemblies.
The capital expenditure incurred on the construction, manufacture, installation or acquisition of the fencing asset must have been incurred primarily and principally in a primary production business that you conduct on land in Australia. The lessee of the land is also eligible to claim these deductions for fencing assets.
Fodder storage assets
If a cost was incurred on a fodder storage asset, it can be immediately deducted in the income year it was incurred, if the expense was incurred either:
- on or after 19 August 2018, or
- before 19 August 2018, but the asset was first used or installed ready for use on or after 19 August 2018.
If the capital expenditure was incurred after 7.30pm (AEST) on 12 May 2015 but before 19 August 2018, and the asset was first used or installed ready for use before 19 August 2018, one-third of the expenditure can be deducted in the income year in which the expenditure is incurred, and the same amount in each of the following two income years.
Horticultural plants (including grapevines)
Deductions for the decrease in value of horticultural plants can be claimed by primary producers, under the following conditions:
- Ownership of the plants (including lessees and licensees of land, who are considered as owners of the horticultural plants on that land).
- Use of the plants in a horticulture business to generate assessable income.
- The expense was incurred on or after 9 May 1995 (or for grapevines, on or after 1 October 2004).
If you are a primary producer and a small business entity, you can choose to work out your deductions for water facilities, fencing and fodder storage assets under either the simplified depreciation rules or these UCA rules. Horticultural plants can only use UCA to work out deductions.
According to the Tractor Machinery Association of Australia, $5.6 billion was spent on agricultural machinery in Australia in 2022, an estimated increase of nine per cent from 2021.
Given that farmers are continually updating their plant and equipment assets, it’s essential to organise a tax depreciation schedule this financial year.
Agribusiness case study
The farmer owns an 800-acre dairy farm in regional Victoria, which he purchased for $3,626,000. The business identifies as a small business entity.
The farmer decides to enlist BMT Tax Depreciation to prepare a tax depreciation schedule after hearing about the deductions he could claim.
Examples of some of the deductions he can claim include cattle laneways, water dams, sheds, fences, dairy milking sheds, dairy yards and milking systems.
From the tax depreciation schedule, he finds out he can claim a huge $345,300 in depreciation deductions in the first financial year alone and a massive $1,575,000 in the first five cumulative years.
Maximise the return on your agribusiness
BMT found agricultural clients an average of $96,458 in first full year depreciation deductions in the 2022/23 finanical year.
A specialist quantity surveyor like BMT will always perform a thorough site inspection to ensure owners claim the maximum depreciation deductions from their agribusiness.
To find out how much you could be claiming each year, Request a Quote or call our expert team today on 1300 728 726.