With drought sweeping across the country, everyone is doing what they can to help. Farmers have been offered access to concessional loans, grants, and special allowances to help ease the immediate financial burden. While it is difficult to predict when the drought will break, for those who are in the process of navigating their way out of immediate financial strain, there are ways to future proof your farm or primary production business by taking advantage of various tax concessions.
Some of the immediate assistance measures include concessional loans and the farm household allowance, through which lump sum payments of up to $12,000 can be paid to eligible farm households.
The allowance can also be in the form of fortnightly payments for a maximum period of four cumulative years at the same rate as the Newstart allowance. This allowance may be available to both the farmer and their partner, provided certain conditions are met. An activity supplement of up to $4,000 to pay for study, training or professional financial advice may also be available to eligible households.
In addition to the immediate assistance, primary producers can obtain ongoing benefits of various tax concessions, including the instant asset write-off, immediate deductions for fodder storage assets, and income averaging to assist with cash flow.
This financial year (from 1 July 2019 to 30 June 2020) is the last year you can get an immediate deduction for assets you've purchased that cost less than $30,000 (depending on the date of purchase), provided you're classified as a small business. From 1 July 2020, you can only obtain an immediate deduction for assets that cost less than $1,000. Make sure you make the most of this concession, if you're thinking of buying water storage or other drought-proofing assets, it may be wise to bring forward the purchase.
In addition to the other assets you can get an immediate deduction for, any structural improvement, capital repair, alteration, addition or extension to an asset or structural improvement that is primarily and principally used for storing fodder is immediately deductible in the year you incurred the expense. Increasing the capacity or changing the way the feed is stored will almost certainly provide an insurance policy for dry times and lessen the financial strain of having to purchase feed for livestock.
If you're an individual carrying on a primary production business, you can apply income averaging to account for what may be significant fluctuations year on year from environmental and other factors. This ensures that you will not be subject to an unreasonably high marginal tax rate for one year when it is not representative of your income levels over a longer period.
Income averaging does not apply automatically when you start to carry on a primary production business. Some basic conditions must also be satisfied, such as the business being carried on for two or more years in a row, and the basic taxable income in one year being less than or equal to the basic income in the next year.
When using income averaging, tax is still calculated on your actual basic taxable income at the usual rates; however, you will be entitled to a tax offset if the average income is less than the taxable income. Conversely, you may have to pay extra income tax if the average income exceeds the taxable income.
Source: www.ato.gov.au/General/Financial-difficulties-and-serious-hardship/In-detail/Help-for-drought-affected-taxpayers/; www.humanservices.gov.au/individuals/services/centrelink/farm-household-allowance.