Depreciation 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.
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.
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.
If a farm is classified as a small business entity, owners may also be eligible to claim an instant asset write-off for assets valued less than $20,000. It is important to note that the Australian Taxation Office advises that primary producers who are small business entities can choose whether they work out their deductions for water facilities, fencing and fodder storage assets using those incentives outlined above or those available for small business entities.
Under proposed changes outlined in the federal budget, the government have announced that they intend to extend the incentives for small business owners for one year.
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.
By: Bradley Beer, CEO of BMT Tax Depreciation
This story was originally published in Leading Agriculture Issue 23.