The end of Temporary Full Expensing
| Following another favourable season in 2023, many growers are expecting a large taxable income. In the previous 3 financial years, growers had utilised temporary full expensing for capital purchases of new machinery and improvements to reduce their taxable income. With this ceasing in FY23 and most of the machinery now written down to zero value, the deductible depreciation for this financial year is expected to be quite low in comparison. Also, the added dilemma of selling machinery that has been fully depreciated will add to taxable income. |  |
The instant asset write-off of machinery or capital items under $20,000 continues as does full deductions for capital expenses on fencing and fodder storage assets.
Luckily growers have other tax planning options available. So, let’s look at what other options growers have to manage their taxable income.
Grain inventory and pools
According to the ATO any inventory on hand on 30th June intended for sale, needs to be valued using one of these three methods: at cost, market selling value, or replacement value. If your cashbook accounting is ‘cash’ then grain sales are considered income when funds are received. If using ‘accruals’, then once you’ve contracted grain sales with deferred terms it’s considered as income earned at the time of contract. Some pooled products declare and pay income distributions in the next financial year, but not all do this. It’s important to check with businesses before entering into a pool to check the timing of income distributions.
Pre-pay expenses
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Another strategy used by farm businesses is pre-paying expenses, such as inputs of chemicals and fertiliser, or interest on term loans. Input providers may also offer incentives for prepaying inputs that can create discounts for future purchases. Interest prepayment is also an option on term debt with a fixed interest rate. |
FMDs
Farm Management Deposits (FMDs) are another handy tool when it comes to tax planning. FMDs must go into individual names. Income received as franked dividends from a Company are not primary production income so if your business operates as a company, you can’t deposit funds into an FMD. Operating as a farming partnership or as a trust (where you are a beneficiary) makes you eligible to use FMDs. The funds must remain invested for at least 12 months to be tax deductible. Each individual can hold up to $800k in FMDs at any given time.
Superannuation
| Concessional contributions into superannuation are a tax-deductible expense. Individuals can make concessional deposits up to $27,500 into their superannuation in this financial year. From 1st July 2024 the limit increases to $30,000 per individual. Also, if you hadn’t been contributing in prior years you can back-date up to 5 years. For example, if you haven’t contributed to super in the last 5 years you could claim concessional contributions of up to $132,500 into super (noting the contribution limit for FY2021 & FY2020 was $25,000). |  |
Summary: What next?
Tax planning meetings with your accountant to manage your taxable income is vital, as everyone’s situation is different and some of the above strategies might not be suitable.
When using any of the above strategies, it’s also important to think about cashflow requirements to keep your trading facilities within its limits. Updating your budget figures during tax planning is essential. If you are budgeted to exceed current limits, contact your bank early to get a temporary extension until income starts flowing through post-June 30th.
ORM assists clients in updating their cashflow budget ahead of tax planning and can provide reports to both accountants and banks as required – contact us here