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Tax deductions every agribusiness owner should claim

BMT team — Sat, 20 Jan 2024 05:05:16 +0000

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? Contents Depreciation for agribusiness Agribusiness case study Maximise the return on your agribusiness 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. Fencing assets 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. View the full case study on the 800 acre dairy farm 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 […]

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Farm investment opportunities continue to attract investors

BMT team — Tue, 03 Mar 2020 22:51:03 +0000

Despite the relentless drought and tough conditions, Australian-grown products such as beef, nuts and wool are in high global demand. As a result, farm investment opportunities across the country continue to attract investor groups looking to expand within the industry. In this article we will look at: What farm investment opportunities are investors looking for? 3 key elements to look for in farm investment opportunities Depreciation available for farm investment properties Key points: Large scale farms in reliable rainfall regions are popular among commercial investors Water infrastructure, land quality and logistics are key elements to look for in farm investment opportunities Valuable depreciation deductions are available for farm investments, and specific rulings are in place for primary production assets What farm investment opportunities are investors looking for? Australian farmland is widely dispersed. Large-scale properties, with high production abilities in reliable rainfall regions, are popular among commercial investor groups. Farms close to regional towns with strong water infrastructure are also drawing a crowd. More conservative trends are seen in regions such as the north-west of New South Wales. Agents are finding that while inquiries are rolling in, owners and buyers alike are waiting for more favourable climate conditions before they consider selling or buying. Experienced investors and farmers that are looking to develop their farming portfolio are taking a geographical approach. Expanding their portfolio across the country, rather than being localised, helps them spread their risk and be more sustainable against natural disasters. 3 key elements to look for in farm investment opportunities 1. Water infrastructure The Australian climate can be unpredictable, so farm owners can’t rely solely on consistent rainfall to provide the large amount of water that they need. Water infrastructure provides storage and distribution of water across the property. Dams, bores, tanks and irrigation systems are some key examples of the type of water infrastructure that farm investors are looking at. 2. Land quality You can always change the farming infrastructure to suit your needs, but you can’t change the land. When looking for the right farm, investors must make sure that the land is suited to the livestock or crops that it will hold and grow. Size and soil type are the determining factors for how the land can be used. It’s also important to test the land for any degenerative signs of erosion and contamination. 3. Logistics Every farm must be easily accessible to buyers and suppliers. Before deciding whether to invest in a farm, investors need to do their research on where the farms sits on the map logistically. This is especially important for smaller farms, where getting trucks to the property can be costly if they are far away from the usual routes. Depreciation available for farm investment properties Both owners and tenants of farms used for income-producing purposes can boost their cashflow by claiming depreciation deductions. Capital works deductions can be claimed for the wear and tear of structural assets, such as the farmhouse, sheds, and driveways. Plant and equipment deductions can be claimed for the easily removable items from the property such as tractors and tools. Most assets found on a farm can be depreciated under normal depreciation principles. However, primary production depreciation assets such as water facilities, fencing, fodder storage and horticultural plants are depreciated using their own specific rulings. For more information on how to claim the maximum depreciation deductions for your farm investment property, Request a Quote or contact the specialist BMT team on 1300 728 726.

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Australian winemakers uncork hidden cash flow

BMT team — Tue, 06 Aug 2019 00:01:49 +0000

With some of the oldest grapevines in the world, the Australian wine industry has a rich and vibrant history. Winemakers work with the elements to create quintessentially Australian flavours and the industry continues to thrive both domestically and globally. According to Wine Australia, more than 80 per cent of the wine consumed in Australia is locally produced. On a global scale, export opportunities for Australian wine are the strongest they’ve been for more than a decade, with favourable trading conditions and increased investment providing extra incentive. As the Australian wine industry continues to grow it’s important for viticulturists and winemakers to understand their tax entitlements, including depreciation deductions. Contents: Depreciation for winemakers Winemaker case study Depreciation for winemakers As a building gets older and items within it wear out, they depreciate in value. The Australian Taxation Office (ATO) allows commercial property owners and tenants, such as winemakers, to claim deductions related to the building and the plant and equipment items within it. These deductions can help boost your cash flow and alleviate pressure during low yield periods. Small and medium business owners can also use the instant asset write-off rule for any depreciable plant and equipment asset or fit-out installed with a value of less than $150,000. Along with small to medium business rules, there are specific depreciation rates for winemakers. Grapevines that are planted and first used in a primary production business before 1st October 2004 can be claimed as a special depreciation deduction. According to the ATO the decline in value of a grapevine is worked out at a rate of 25 per cent, provided you own the grapevine, the grapevine is established on land that you either own or lease and that it’s used in a primary production business. The deduction is based on the capital expenditure incurred in establishing the grapevines. This can include preparing the land, planting the vines, and the vines themselves. Winemaker case study Let’s take a look at an example of how claiming depreciation can boost a winemaker’s cash flow. This winery in this scenario features assets such as oak barrels, barrel racks, crushers, grape harvesters, irrigation systems and silos, all of which have significant depreciable value. The table below outlines the first financial year, the cumulative five years and the total depreciation deductions available to the winemaker. In the first financial year, the owner is able to claim $257,015 worth of depreciation deductions, a total tax saving of $70,679. In the cumulative five years, the depreciation claims increase to $823,968, a total saving of $226,591. Over the lifetime of the winery, the owner will be able to claim over two million dollars in depreciation deductions which will improve their after-tax position by $576,077. As you can see, property depreciation can make a significant difference to a winemaker’s cash flow each financial year. To find out the depreciation deductions available on your winery, Request a Quote or call our expert team on 1300 728 726 today.

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