Understanding primary production and depreciation

BMT team — Mon, 08 Feb 2021 23:51:17 +0000

Cattle farms, vineyards, sheep stations and poultry farms are just some examples of the common primary production industries across the country. The sometimes-unforgiving Australian climate means those in the business of primary production should always leverage available deductions to help their cash flows. The general rules of depreciation usually apply to assets used in these industries. However the Australian Taxation Office (ATO) has a number of special rules for depreciating the following assets: Water facilities Fencing assets Fodder storage Horticultural plants One set of rules doesn’t cover all these assets. Therefore, at BMT we look at each asset individually to ensure its particular rules are applied correctly. Water facilities Dams, tanks, tank stands, bores, wells, irrigation channels, pipes, pumps, water towers and windmills are all examples of water facilities. A primary producer can fully deduct the value (or cost) of a water facility if it was incurred after 7:30pm on 12 May 2015 in the same year. However, previous rules apply if the water facility was purchased before this. This means the owner would instead deduct one-third of the cost in the year of purchase and one-third in each of the following two financial years. Fencing Fencing covers the asset itself and any structural improvement to a fencing structure (e.g. alteration, addition or extension). Like water facilities, a primary producer can fully deduct the value (or cost) of a fence if it was incurred after 7:30pm on 12 May 2015 in the same year. To be eligible, the fencing must be used wholly for carrying on a primary production business. For example, if the business owner also lived on the property in a farmhouse that had a personal garden with fencing, they couldn’t claim this. Fodder storage Silos, hay sheds and dried grain bins are just some examples of fodder storage assets. To be eligible for the primary production rules the asset must pass the ‘primarily and principally test’. A fodder storage asset will only pass this test if its main purpose is to store fodder. This means if a shed stored farm equipment, but once or twice a year it stored dried grain due to busy seasons, it wouldn’t pass the ‘primarily and principally’ test. If a primary producer purchased or incurred an expense on their fodder storage on or after 19 August 2018, they can immediately deduct the total cost in the same year. This also applies if it was incurred before 19 August 2018 but first used or installed after this date. If a partial deduction has already been claimed in a previous income year, the previous year’s tax return will need to be amended to claim a deduction for the full amount in the year it was incurred. But what happens if a primary producer acquired a fodder storage asset in June 2018 and installed it after 19 August 2018? In this scenario, the owner would have deducted one-third of the asset’s total in their 2017-18 tax return. However, given the new rules they would need to go back and amend this tax return and claim the amount in full. Horticultural plants Some examples of horticultural plants include grapevines, herbs and apple trees. Primary producers using these types of plants in the business of horticulture can claim depreciation on them. This is provided that they own the plant, and the expense was incurred after 9 May 1995 (or 1 October 2004 for grapevines). The deduction is based on the total cost of establishing the eligible horticultural plant. Some of these costs can include acquiring and planting seeds, ploughing, fertilising and soil enhancement. The effective life of the plant is what determines its depreciation. Primary producers can work out the effective life of a plant or refer to Tax Ruling 2020/3. An instant full deduction of the total cost is only available in the plant’s first commercial season if the effective life is less than three years. However, it’s important to note that if the primary producer is also a small business entity, they must use the uniform capital allowance rules to depreciate any horticultural plant. Primary production assets and temporary full expensing Since the introduction of the temporary full expensing policy, BMT has received many enquiries regarding how this policy works for primary production assets that usually qualify for the special rules. These assets are excluded from the temporary full expensing policy, unless the primary producer is a small business entity that opts to use the simplified depreciation rules for the assets. BMT Tax Depreciation has completed thousands of tax depreciation schedules for primary producers across Australia. The team ensures all relevant depreciation and primary production legislation are applied correctly so full compliance is maintained. Visit BMT’s commercial information page or Request a Commercial Quote to find out more about the commercial services they offer.

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What documents you need when visiting your Accountant

BMT team — Thu, 09 May 2019 05:14:49 +0000

Tax time can be daunting, but it doesn’t have to be. Preparation ahead of your tax return appointment can save you time and help maximise your tax refund. When using a new Accountant, always provide your last tax return. This will include your personal details, tax file number, income streams, tax offsets, deductions, and other relevant information previously claimed. If you’re a property investor, there are also certain documents required to ensure you claim the biggest tax refund possible. Here’s what you should prepare for your tax return appointment: In this article we will look at: Tax Depreciation Schedule Repairs and maintenance expenses Income Borrowing expenses Rental fees Insurance Rates Tax Depreciation Schedule Depreciation is a deduction for the decline in value of items as they wear and tear over time. A BMT Tax Depreciation Schedule covers all deductions available over the lifetime of the property, broken down into plant and equipment and capital works deductions. Eligible plant and equipment assets can be depreciated based on their effective life. However, assets valued less than $300 can be claimed in full in the same year, while assets valued at less than $1,000 can be tallied into a low-value pool to increase the depreciation deductions. Assets which fall into the low-value pool can be claimed at a rate of 18.75 per cent in the first year and 37.5 per cent from the second year onwards. Capital works deductions (for the building structure) can be claimed over forty years at 2.5 per cent of the total cost per year. To arrange a tax depreciation schedule, Request a Quote today. Repairs and maintenance expenses Any repairs and maintenance can be claimed as an immediate deduction with your Accountant by providing the relevant receipts and invoices. However, if you complete any renovations or repairs which are considered capital improvements (where you improve the value of the asset beyond its original state at the time of purchase) these items will need to be depreciated as either capital works or plant and equipment depreciation. To learn more, read our Maverick article regarding repairs and maintenance and capital improvements. Income Before your tax return appointment, you must prepare the income of your investment property, including the number of weeks rented and the total rent received. You can only claim rental property tax deductions for the period of the year that the property was tenanted or actively advertised as available for rent. Borrowing expenses When you first purchase your investment property the borrowing expenses involved, such as loan set-up fees, can be claimed. As outlined by the Australian Taxation Office, if your total borrowing expenses are more than $100, the deduction is spread over five years. If the total borrowing expenses are $100 or less, you can claim a full deduction in the income year they are incurred. A borrower can also claim a tax deduction for interest on an investment property loan within the same financial year because it’s an expense incurred in earning what is known as assessable income. Rental fees As an investor, you can claim any rental advertising and property management fees charged in the same year that you paid for them. Be sure to keep all receipts and rental statements to substantiate your claims. Insurance If you claim rental income on your property, your homeowner’s insurance becomes tax deductible. Other insurances that may be tax deductible include: building contents public liability private mortgage insurance. Visit BMT Insurance to get a free quote to organise your insurance. Rates As a property investor, you may be entitled to claim an immediate deduction for body corporate fees and charges, council rates and land tax.

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Understanding primary production and depreciation

What documents you need when visiting your Accountant