Tax time tips for farmers and contractors

Tax time isn’t always as enthusiastically welcomed as Christmas but just occasionally, there are glad tidings in the fields.

For example, in the 2019-2020 federal budget, the Government bumped up the instant asset write-off value - which means if you’re the owner of a small business and need to purchase assets (equipment, vehicles etc) for business purposes, you can claim more in less time.

The government raised the instant asset write-off to $30,000 from its previous $25,000. In simple terms, if your business purchased, installed or first used an asset worth less than $30,000 - say, $25,000 - then you would be able to claim that amount as a deduction in the same financial year.

That is a welcome change from the normal system of using depreciation rules to claim a tax deduction over multiple years.

The Treasurer in his speech noted that the deductions on assets that cost $30,000 or more are still available for businesses, but the value will be added to a pool and then deducted from there. How much and when you can claim depends on individual circumstances and is something for your accountant to figure out.

At the same time, there was an increase in the business annual turnover threshold to $50 million, a big jump from the previous $10 million threshold.

For businesses with turnover of less than $10 million, the write-off is available for assets acquired before the April 2019 budget, but installed ready for use after.

It stated that for businesses with turnover between $10 million and $50 million, the write-off is only available for assets acquired after April 2, 2019.

KPMG Enterprise’s senior manager for tax, Kudzai Chipangura, told farmmachinerysales that eligible business owners such as primary producers should now be considering how best to make use of the business asset write-off for acquisitions made from now through to June 30, 2020.

“The changes to the ‘instant asset write-off’ and turnover thresholds apply from the time of the announcement, 7.30pm on April 2, 2019,” Chipangura said.

“The ATO said this allows eligible business owners to continue claiming a full deduction for business assets in the year they are purchased and/or installed.

“It will help these businesses improve their planning and cash flows.”

Chipangura said the tax advantages of buying the asset were retaining ownership; access to the instant asset write-off incentive; and depreciation deductions for higher asset value purchases.

Against that, a purchase has disadvantages of the higher initial cost; the inability to change machinery if required; ongoing maintenance; and being left with equipment that is at risk of being out-dated.

“Leasing machinery can be preferred in cases where the business wants to avoid cashflow constraints,” he said.

“It also means the equipment is easy to upgrade when the lease finishes and that the business is able to negotiate flexible terms.

“The benefit to the business’ bottom line is that the lease payments can usually be deducted as a business expense in the tax return.”

Chipangura added the downsides were the higher overall cost of the equipment and that the business has no ownership.

Should you wish to purchase machinery or a ute, for example, to take advantage of the instant asset write-off, make sure it comes with sufficient warranty to cover you for any unexpected mechanical issues further down the track.

In other budget changes, there were commitments made to North Queensland recovery efforts, the Future Drought Fund and a Climate Solutions Package National drought strategy.

It added support to the agribusiness sector with $60 million over three years for Export Market Development Grants and $9.5 million to boost agricultural regulations and food safety relationships between Australia and China.

The climate package will be $3.5 billion over 15 years to meet Australia’s 2030 climate commitments. Of that amount, $2 billion will go towards the government’s “practical emission reduction activities including working with farmers and Indigenous communities.”

There will also be an additional $34 million over four years for the development of a National Agricultural Biodiversity Policy and biodiversity certification scheme trial; while the Building Better Regions Fund will get $206.2 million to support regional community infrastructure and capacity building projects, and $102.8 million to establish the Regional Airports Program that will provide grants to upgrade infrastructure.

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