Tax implications for agribusinesses can vary significantly depending on factors such as the nature of the agricultural activities, the structure of the business and the specific government regulations.
Below is a list of tax strategies and considerations to help primary producers manage cash flow and manage their situations while times are tough.
Instant Asset Write Offs
As part of the 2025 Budget, the Australian Government announced it will extend the $20,000 instant asset write-off by a further 12 months to 30 June 2025. The $20,000 threshold will apply on a per asset basis, so small businesses (turnover of less than $10 million) can instantly write off multiple assets. However, this measure is not yet law.
Primary Production Assets
Taxpayers engaged in primary production business can claim an immediate deduction on the cost of the following assets:
- Fencing assets
- Fodder storage assets, eg. Sheds, above round bunkers used to store grain or animal feed, silos, tanks and bin
- Water facilities, eg. Irrigation channels, pumps, pipes, water towers, dams, tanks, tank sheds, bores and wells.
- Landcare operations, e.g erecting fencing to separate land affected by degradation, constructing a levee, constructing drainage works primarily and principally to control salinity or drainage control.
Depreciation deductions for fencing and fodder storage
Fencing assets and fodder storage assets have their own very favourable depreciation regime. Expenditure on these assets can be deducted immediately, rather than depreciated and claimed over time. If fencing asset was constructed at any time after 12 May 2015, the whole amount of the expense can be deducted in the income year that the expense was incurred. Fodder assets, purchased on or after 19 August 2018 can be treated the same way. The fodder storage rules are broad and can apply to hay sheds, grain storage sheds, above ground bunkers, silos and liquid feed supplement storage tanks.
Farm Management Deposits (FMD)
Investing in FMDs can help individual primary producers reduce fluctuations in taxable earnings caused by economic and seasonal changes to primary production income. They are a reduction in an individual’s primary production income in the year they are taken out and primary production income in the financial year they are withdrawn. However, the FMDs must be held for at least 12 months. There is also a maximum limit for deposits of $800,000 per person.
Forced Cattle Sales
Drought and increase in feed prices have forced many producers to sell off portions of their livestock to survive, a move that likely has tax implications. These sales need to be tracked and identifiable as being a forced sale, as opposed to simply being part of the normal course of business.
It is important to note that forced sales are a tax deferral and not a tax offset or exemption. It is simply the deferral of profit from the current year forced sales to future years.
The Tax act has several concessions which allow you to defer the tax. There are two types of elections:
- Elect to spread the profit in equal instalments over a five year period that includes the year of the enforced sale. These amounts are fixed and with no opportunity to vary the amount in accordance with future seasonal conditions.
- This second election allows more discretion around how the forced sales are managed. Under this election, the profit on forced sales is removed from the assessable income in the financial year in which the forced sale is made and no requirement to be brought back to account in that same year. The forced sales can be brought back in the current and next five years following the forced sales.
Forced sales are a deferral provision and will eventually be assessed, albeit at a potentially lower rate of tax than if the total amount was included in the current year of income.
Non-Commercial Losses
An exception to the Non-Commercial Loss (NCL) rules allows net losses from certain primary production business activities to be claimed in the year incurred.
If you have a loss from a primary production business activity that is less than $40,000 in an income year, you can claim your loss in that income year. The $40,000 excludes any net capital gains.
Also, the NCL measure does not apply if the sum of your taxable income, reportable fringe benefits, reportable superannuation contributions and total net investment losses, is less than $250,000 and your business activity meets certain prescribed criteria.
If a primary producer cannot claim the losses in the current year due to the income test, the losses can be carried to future income years. The losses can be used to offset against any assessable income in those future years.
Water Trading Rights
Water trading rights can have Capital Gains Tax (CGT) implications from the sale, transfer or ending of water licenses, allocations, quotas and entitlements. A permanent or temporary trade of a water right constitutes a CGT event. The taxable gain is generally calculated as the difference between the sale proceeds and the cost base of the water trading right.
Carbon Credits (Carbon Offsets)
Australian Carbon Credit Units (ACCU) may be issued to primary producers under the Carbon Credits (Carbon Farming Initiative) Act 2011 in relation to eligible offsets projects they undertake.
If you are an eligible individual primary producer, the income derived from the sale of ACCUs may be entitled to concessional tax treatment under specific provisions aimed at supporting primary production activities.
We recommend that you seek our advice to determine the specific tax implications and eligibility for concessional tax treatments based on your primary production business and other circumstances.
For More Information
For more information on the above tax implications for primary producers, please feel free to contact your Archer Gowland Redshaw adviser on (07) 3002 2699 | info@agredshaw.com.au
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