Farming as a tax deduction?

2 posts
Thu, 06/14/2012 - 20:37 #1

Member for

12 years 5 months
MA
Last seen: 03/08/2018 - 21:05
Joined: 06/14/2012 - 19:35

Farming as a tax deduction?

Hi,

I am currently investigating options for reducing my tax liability for next financial year and into the future.  I am currently self employed in the construction industry and have a reasonably high income and very few deductions which means I give way to much money to the government.

I have always dreamed of owning rural property and have been considering purchasing some property 100 - 500acres potentially in the Warrick area or anywhere within 2 hours drive of Brisbane.  I don't intend living on the property but would intend to be there every 2nd or 3rd weekend.

The reason farming appeals to me is the potential to pay of land (create an asset) with income that would have been lost to tax it would effectively cost me nothing/little to generate the asset.  I also ride dirt bikes and so do my kids so we can play whilst managing the farm.

I have reviewed the tax laws in regards to qualifying as a business and being able to offset deductions against other incomes.

I guess I am looking for some general advise which will point me in the right direction to do the indepth research.

My questions are:

Is farming a potential avenue for me to investgate further for the purposes above?

What type of farming (livestock or cropping) should I look at and what breed of either would suit my availabilty?

What area within a 2 hour radius of Brisbane should I look at?

Any other advise you may have?

Thank you in advance for any advise given.

MA

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Mon, 06/18/2012 - 12:10 #2
charlie
Last seen: 12/26/2018 - 09:21
Joined: 05/31/2011 - 09:44

Hi Ma,

Welcome to Farmstyle, thanks for the question.

Firstly let me say that I am not an accountant and therefore any advice is of a general nature.

Unfortunately, gone are the days where you could own a farm, make losses year on year and claim deductions against other income earned. In 2009 the federal government made it harder for individuals earning more than $250,000 a year to offset losses from farms against their other income, these deductions are now quarantined to that business.

The ATO explains that you can offset a loss from your business against your other income if you meet the income requirement (less than $250,000) and your business passes one of these tests:

  • It produces assessable income of at least $20,000.
  • It has produced a profit in three of the past five years (including the current year).
  • It uses real property or an interest in real property worth at least $500,000 on a continuing basis.
  • It uses other assets worth at least $100,000 on a continuing basis.

The good news is that if you are legitimately running your small farm as a business and your turnover is above $20,000 you will be allowed to claim losses as tax deductions against future farm income.

For a small farm to meet the business criteria it needs to produce a high income per hectare, high value product or value add. In most cases, traditional agricultural enterprises like sheep, cattle and cropping will not produce enough income for the farm to be classed as a buisness. High value (per hectare) horticultural crops can produce the required amount of income (to be classed as a business) but they also have large up front investments cost of $10,000-12,000 per hectare and long breakeven periods of 5-7 years.

I am not familar with the area around Brisbane, however I'm sure some other Farmstyle members have looked at buying farms in this area and may have some advice for you.

I hope this information is of assistance.

Charlie

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