To help you understand the opportunities you should be discussing with your tax advisor, we’ve prepared a list of the tax rules farmers should consider in relation to tax planning this year.

While some of the relevant tax concessions that may be available to farmers apply to business taxpayers generally, there are several tax concessions available only to farmers and agribusiness.

Small business entity depreciation rules

A Small Business Entity (SBE) is broadly an entity conducting a business with an annual aggregated turnover of less than $10 million.

If your farm business is an SBE that chooses to apply the simplified depreciation rules, then you can claim an immediate deduction for eligible fixed assets that cost less than $20,000.

Assets costing $20,000 or more will be added to a pool and depreciated at 15% in the first year and 30% in subsequent years.

To claim depreciation in the current financial year, the asset must be first used or installed ready for use by 30 June 2024.

Primary production assets

Taxpayers engaged in a primary production business can claim an immediate deduction on the cost of the following assets:

• Water facilities, e.g. dams, tanks, tank stands, bores, wells, irrigation channels, pipes, pumps, water towers and windmills;

• Fencing assets;

• Fodder storage assets, e.g. silos, tanks, bins, sheds and above ground bunkers used to store grain and other animal feed;

• Landcare operations, e.g. erecting fencing to separate land affected by degradation, constructing a levee, constructing drainage works primarily and principally to control salinity or assist in drainage control, an operation primarily and principally for eradicating or exterminating animal pests from the land or plant growth detrimental to the land.

Horticultural plants

You can deduct the costs of establishing horticultural plants over their effective life. If the effective life is less than three years, the establishment costs can be written off in full. Otherwise, you can write off the establishment costs over the maximum write-off period as specified by the Commissioner of Taxation (Commissioner).

Electricity connections and telephone lines

You may be able to claim a deduction over ten years for capital expenditure incurred on connecting or upgrading mains electricity to land on which a business is carried on, or installing or extending a telephone line on land on which a primary production business is undertaken.

Trust distributions

If your farm business structure involves a trust, then it is crucial that the Trustee prepares a resolution to distribute income to beneficiaries prior to 30 June 2024 (or earlier as required by the Trust Deed). Failure to do so may result in the Trustee being taxed on profits at the highest marginal rate of tax (45% + Medicare levy) or distributions being assessed to default beneficiaries.

Beneficiaries must also be notified of their entitlement to trust income by the earlier of the due date and actual date of lodgement of the Income Tax Return for the trust.

Tax planning with your tax advisor should be undertaken well in advance of 30 June to ensure the resolution can be made with tax effective considerations in mind.

Primary production averaging

Primary producers can elect to apply the income tax averaging regime, which acts to smooth out your income and tax payable over a maximum period of five years. Your income may spike or drop in one or two years due to such events as price increases, natural disasters or changes in demand.

Broadly, where your annual income exceeds the average, you will receive a tax offset to reduce your tax payable, and if your income is below the average, you will have to pay extra tax. You can elect to withdraw from the averaging system for ten income years and pay tax at ordinary rates. It is a non-revocable election, and you will not re-enter the averaging system until year 11.

Farm management deposits

A farm management deposit (FMD) can be used to shift income from good years to bad years to manage seasonal fluctuations.

To claim a deduction for an amount deposited into an FMD, you must:

• Be an individual (including a partner in a partnership or a beneficiary of a trust);

• Be carrying on a primary production business in Australia when you make the deposit;

• Have no more than $100,000 in taxable non-primary production income in the income year you make the deposit;

• Make a deposit of at least $1,000;

• Hold no more than $800,000 in total in FMDs.

The amount must remain deposited in the FMD account for at least twelve months. If you withdraw an FMD, the amount of the deduction previously allowed is included in your assessable income in the year of withdrawal.

There is a concession to permit an early withdrawal of an FMD within twelve months if you are affected by a natural disaster or a severe rainfall deficiency. The amount withdrawn is still assessable income in the year of withdrawal, however, you will not lose the earlier deduction.

Your tax advisor can provide more information on how to apply this.

Variation of PAYG instalments

Subject to a review of your year-to-date tax position, it may be possible to reduce the amount of your March and June 2024 quarterly pay as you go (PAYG) instalments. This can help improve your cashflow now rather than waiting until you lodge your Income Tax Return to receive a refund.

Bad debts

If you have any bad debts, ensure these are written off prior to 30 June 2024 to claim a deduction. Minutes should also be prepared to formalise the write off.

Non-commercial losses

The non-commercial loss provisions will apply to deny an individual from offsetting a loss from a business activity against other income earned during the income year unless one of the following four tests are passed:

1. Assessable income test

The assessable income from the activity for the year must be at least $20,000.

2. Profits test

The activity must have resulted in a profit in at least three out of the last five income years, including the current year.

3. Real property test

The total reduced cost bases of real property or interests in real property used on a continuing basis in carrying on the activity must be at least $500,000.

4. Other assets test

The total value of other assets (other than motor vehicles) used on a continuing basis in the activity must be at least $100,000.

There is an exception for primary production and professional arts businesses if your assessable income from other sources not related to that particular business activity is less than $40,000, excluding any net capital gains.

Individuals with an adjusted taxable income of $250,000 or more will generally not be able to offset losses from non-commercial activities against other income. However, you may be able to request the Commissioner’s discretion to allow you to claim the loss where special circumstances exist.

Small business capital gains tax (CGT) concessions

A capital gain on the sale of an active asset that is used in the course of carrying on a business may be reduced if certain basic conditions are satisfied. One of the entry tests is that you must either be a CGT small business entity (carry on a business and have less than $2 million in aggregated turnover) or satisfy the maximum net asset value test (have an aggregated value of net assets of less than $6 million).

The concessions include:

• Small business 15-year exemption;

• Small business 50% reduction;

• Small business retirement exemption;

• Small business roll-over.

These very valuable CGT concessions can be complex to understand and apply correctly. We recommended that you contact your tax advisor before entering into a contract to sell a business, farmland or other business asset to determine your eligibility.

Timing of income and expenses

Consider the recognition of income leading up to 30 June 2024, such as:

• Timing of sales income;

• The date of signing a contract for the sale of a CGT asset.

Also consider bringing forward deductions prior to 30 June 2024, such as:

• Acquiring depreciating assets;

• Undertaking repairs on property and machinery;

• Superannuation contributions;

• Prepaying expenses such as fodder and fertiliser.

The timing of income and expenses will be particularly important this financial year with the stage 3 tax cuts taking effect from 1 July 2024. This will result in lower taxes for many individuals next financial year.

The tax rates that currently apply to resident individuals for the 2023/24 year are:

The tax rate that will apply to resident individuals for the 2024/25 year are:

Trading stock (including livestock)

In general, you are required to undertake a stocktake on 30 June 2024. For each type of livestock, record the quantity of the following:

Opening stock (1 July 2023) + purchases + natural increase - sales - deaths - killed for rations = closing stock (30 June 2024)

Stock can be valued under different methods for each item of stock:

• Cost;

• Sales value;

• Lower market value or replacement cost.

Working with a tax advisor can help farmers and agribusiness owners take advantage of a range of tax planning opportunities that could help reduce their tax exposure this financial year. Speak to a Findex Tax Advisor today.