Federal Budget farm machinery write-offs

The Government’s instant asset write-off cap was increased from $30,000 to $150,000 at the onset of the coronavirus but had been set to end on December 31 this year.

The Government will also introduce a ‘loss carry-back measure’, allowing losses made to June 2022 to be offset against profits made in or after the 2018-19 financial year.

This means farmers could purchase machinery and immediately deduct the full cost to generate a tax loss, which could result in the refund of tax paid in the past two financial years.

Machinery sales spike expected

Dealers are preparing for increased interest in new machinery in the wake of the announcement.

Patrick Fox, regional operations manager for the Wimmera with John Deere dealer Emmetts, said he thought there would see more interest in spending into next year.

“This is going to spark some enthusiasm to complete the purchase they may have been thinking about,” he said.

Timing is ideal

Mr Fox said, in areas that were enjoying a favourable season, the announcement had come at the ideal time.

“It’s definitely fortunate timing, especially with the forecast of rain over the next couple of days, that’s going to go a long way to helping finish grain crops,” he said.

“And for us, it is perfect timing, because our early-order programs were released recently for most product lines.

“For those product lines that we generally sell around October, November, December, there’s definitely going to be a flurry of activity for our sales teams.”

‘We can increase our capacity’

Grower Fiona Hall of Orange NSW said the instant asset write-off scheme had already helped her business.

“It has allowed us to install a new grader this year, and to extend our packing shed,” she said.

“And it means that we can increase our capacity for the increase of planting.”

Things to watch

Rural accountants have welcomed the news but have urged farmers to proceed with caution.

Farmers should not look at this tax year in isolation. What should be considered is the implication to future years’ taxable income.

For example, if a farmer buys a header for $700,000, the business would get a $700,000 tax deduction. However, if in three years it was traded on a new model for $500,000 that would increase the taxable income in three years by half-a-million dollars.

You need to take advantage of the tax legislation that’s passed, but at the same time be careful that you’re not spending to buy a tax deduction you don’t really need.

It could also present opportunities to withdraw from farm management deposits. Say you spend enough money on plant and equipment that it results in a loss, it may be an ideal time to redeem farm management deposits if you’re fortunate enough to have them.

On the carry-back measure, it would be useful for some people, but wouldn’t be available to most farmers.

That won’t affect a lot of farmers because most don’t trade through companies, and the carry-back rules are in relation to trading companies, not a trust.

Unprecedented investment incentives

In his Budget speech, Treasurer Josh Frydenberg said the measures were the “largest set of investment incentives any Australian Government has ever provided”.

“A trucking company will be able to upgrade its fleet, a farmer will be able to purchase a new harvester, and a food manufacturing business will be able to expand its production line,” he said.