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 a building and the fixtures and fittings within it.
It’s often missed by agribusiness owners because it’s considered to be a non-cash deduction, meaning you don’t need to spend money in order to be eligible to claim it. In fact, research has shown that 80 per cent of investors are missing out on the depreciation deductions they’re entitled to.
Depreciation can be claimed for a building’s structure via capital works deductions and for the plant and equipment assets contained within the property.
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 include:
- water facilities used to conserve or convey water
- fodder storage assets
- horticultural plants.
Some farmers may be eligible to choose to claim concessions under the instant asset write-off rules as a small business. To learn more, read ‘Instant asset write-off increased to $30,000 until 30 June 2020’.
According to the Commonwealth Bank’s Understanding Australian Farmers’ Investment Intentions Report, on-farm plant and equipment was by far the biggest area of investment growth during 2018, with 31 per cent of Australian farmers saying this was where they increased spend the most. When asked why, over half said they needed new or upgraded equipment to operate a productive farming business.
Given that farmers are continually updating their plant and equipment assets, it’s essential to organise a tax depreciation schedule this end of 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 $126,326 in first full year depreciation deductions last financial year.
During that same time, the number of BMT Tax Depreciation Schedules requested by primary producers increased by 46 per cent.
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.