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Depreciation is a cash cow for farmers

Could you claim $149,187 from your rural property?

The most recent Commonwealth Bank Agri Insights Report suggests that investment in Australian rural properties remains strong.

Rural properties can generate substantial depreciation deductions, as one owner of a dairy farm recently found out. From some typical assets discovered on the property BMT found $149,187 in depreciation deductions in the first full year.

The report revealed that investment intentions have strengthened among cotton, beef, lamb, summer grain and wool producers, while horticultural investment intentions are at their highest level to date.

Adding to the expected increase in production, the report projects that a significant proportion of farmers intend to spend more money on items used on their properties. 25 per cent of those surveyed nationally plan to purchase plant and equipment items, while 38 per cent planned to spend on fixed infrastructure.

While BMT Tax Depreciation experienced substantial growth in the number of depreciation schedules requested by agricultural property owners over the past two financial years (a 36 per cent increase during 2014-2015 and a 51 per cent increase during 2015-2016), many farmers are still failing to consult with a specialist Quantity Surveyor to ensure their claims are maximised.

Given that farmers can experience times of financial hardship (particularly during droughts, floods or fluctuations in the price of goods being sold) the additional cash flow that depreciation claims can deliver to rural property owners is often vital.

To demonstrate the difference that depreciation claims can make for farmers, we looked at how BMT helped the owner of one dairy farm.

The farmer purchased a property for $1.75 million and on settlement they requested a depreciation schedule. A detailed site inspection completed by our expert team discovered they could claim deductions for the assets outlined in the table. The table also shows the first full financial year deductions the dairy farmer could claim.

Dairy farm deductions
Asset Cost Depreciation rate First full year deduction
Automatic milk line washing systems $18,176 20% $3,635
Automatic feeding system $17,976
16.67% $2,997
Cattle yards $17,647 6.67% $1,177
Dairy milking sheds $58,627 6.67% $3,910
Exercise yards $1,765 10% $177
Feed mixers $25,882 28.57% $7,394
Fences $105,883 100% $105,883
High pressure pumps and hoses $3,185 20% $637
Hot water services $2,000 20% $400
Manure spreaders $4,353 20% $871
Robotic milking systems (multi-box) $49,824 20% $9,965
Steel silos (used for fodder storage) $13,129 33.33% $4,376
Water troughs $7,765 100% $7,765
Total $326,212 $149,187

Assumptions and disclaimer

The depreciation deductions in this example have been calculated using the diminishing value method. An immediate write-off has been applied to fences and water troughs. Silos have also been depreciated over three years as per the accelerated depreciation concessions outlined in the 2015-2016 federal budget for primary producers. The owner of this farm was not classified as a small business.

In the first full financial year alone, BMT found $149,187 in depreciation deductions for the assets listed.

The dairy farm owner is also entitled to claim additional capital works deductions for the barn and a homestead.

In total, the owner of a typical dairy farm with these assets and structures could expect to claim between $850,000 and $1.1 million over the life of the property.

Incentives outlined in the 2015 budget for primary producers mean that farmers are entitled to write-off a number of assets immediately. This includes fences, dams, tanks and irrigation channels. However, the Australian Taxation Office does stipulate additional rules if owners are depreciating second-hand assets.

It is therefore essential to seek expert advice and to obtain a comprehensive depreciation schedule to ensure deductions are correct and maximised based on the individual circumstances and requirements of the property owner.