MANY COMMERCIAL PROPERTY investors often own significant rural properties -- both for profit and pleasure. As such, we thought it important to ensure they're aware of the full tax benefits available.
Earlier this year during the May 2015 federal budget, the federal government announced that farmers could make additional claims from 7:30pm on 12 May 2015 in the form of instant deductions for fencing and water facilities.
Prior to this announcement, fences depreciated over a period of thirty years, while most water facilities depreciated over three years and fodder storage assets over a period of up to fifty years.
Primary producers now are able to immediately deduct the cost of fencing and water facilities such as dams, tanks, bores, irrigation channels, pumps, water towers and windmills. Fodder storage assets such as silos and tanks used to store grain and other animal feed will now depreciate over three years.
Many smaller farm businesses (which have an aggregated turnover of less than $2 million) will also benefit from the budget's broader small business initiatives.
Owners of these properties can choose to use either the accelerated depreciation for primary producers, or the accelerated depreciation for small businesses for each depreciating asset.
For example, if a sheep farmer was to invest $19,500 on a new silo to store feed, the farmer could choose to claim an immediate deduction of $19,500 for the silo under the small business rules, rather than choosing to depreciate the asset over three years under the new rules for primary producers.
Therefore, it's worthwhile to examine the difference the recent budgetary measures have on the depreciation deductions for a farm that qualifies as a small business.
Below is a comparison table of the first full financial year's deductions found for common farming assets prior to and after the 2015 budget.
The depreciation deductions in the above scenario have been calculated using the diminishing value method and are based on a property with an aggregated turnover of less than $2 million.
The first year deductions prior to the 2015 budget changes have been calculated using the simplified depreciation rates for small business entities.
* Fences, dams, pumps, irrigation assets and windmills can now be applied as an immediate write-off if the asset was acquired after 7:30pm on the 12th of May 2015.
** Assets with a depreciable value of less than $20,000 for a farm business with an aggregated turnover of less than $2 million can now be applied as an immediate write-off if the asset was acquired after 7:30pm on the 12th of May 2015.
Bottom Line: As the table demonstrates, if a farmer acquired all of the above assets after 12 May 2015, they will be able to claim an additional $153,637 in depreciation deductions.
For further advice on how the recent federal budget changes have impacted the depreciation deductions for assets in properties used for primary production, consult with one of the expert staff at BMT Tax Depreciation or speak with your Accountant.