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Taxation In Agriculture Australia

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    Taxation is a key element of the process of running an agricultural business. However, it can be difficult to understand how taxes are applied, especially in Australia, where there are so many different types of taxation. 

    This blog post will explore some common questions, including what tax deductions you may potentially receive on your farm, the difference between GST and income tax, and what records you should keep helping with your tax return.

    Taxation can be a confusing topic for many, especially in the agricultural industry. This article will outline some key points to help you understand more about taxation and how it affects your farm. 

    Taxes are due on all agricultural income generated by Australian farmers each financial year. The amount of tax owed depends on the type of farming you do and whether or not your business operates as a company or an individual (sole trader). 

    If you're an individual farmer, then the amount of tax payable depends on how much profit your farm makes during the financial year, whereas if you operate as a company, then only 20% of profits are taxed regardless of their size - this is called Corporate Tax Rate. 

    Farmer Tax Guide

    In order to assist in providing answers to some useful queries regarding farming and taxes, we penned our farmer tax guide.

    There is a great deal of misunderstanding over the definition of a farmer in the tax system. In addition, determining whether or not activities related to farming are taxable might be just as difficult. Therefore, we also go over some useful tax advice that you should think about when selling your farm.

    The Meaning of "Farmer"

    Surprisingly, when it comes to matters of taxation, the term "farmer" does not have a clear and well-defined connotation. The Australian Taxation Office (ATO) likes to refer to farms as "primary producers," which is a larger group than "primary producers."

    Primary producers are those who engage in activities such as growing plants or animals, fishing or pearling, farming trees or felling them, fishing for oysters or pearling, farming trees or falling them, or fishing for pearls. Primary producers can be individuals, partnerships, or companies. They are able to qualify for a number of different tax benefits and are subject to a variety of different financial rules.

    Comparing a Hobby Farm to a Full-Time Farm

    The first question you need to ask yourself is whether or not you run a large-scale commercial operation or a hobby farm on a smaller scale. Because they are not conducted on the same scale as enterprises, hobbies are not subject to taxation in most cases.

    Example 1 of the Farmer Tax Guide: Hobby

    Someone who has a dozen hens has access to more eggs than they need for their house because the chickens supply them with more than enough. If the individual's main involvement in "farming" consists of selling extra eggs to their neighbours and doing nothing else related to the industry, then it is highly unlikely that they are legitimately operating a business of any kind. Because of this, they are exempt from paying taxes on the money that they earn and are free to retain the entire amount for themselves.

    Example 2 of the Farmer Tax Guide: Working Farm

    Because the owner of these 30 llamas intends to sell the wool to a manufacturer of clothing, they have decided to raise and breed the animals themselves. Because it is quite likely that this individual is the owner of a business, any profits that it generates are subject to taxation on their part.

    How do I determine the type I run?

    There are a variety of considerations that go into determining whether or not your farming activities constitute a taxable business.

    Regarding this topic, the single most important question to ask yourself is whether or not you expect to make a profit from your endeavour. In addition, the regularity and duration with which you engage in your activity are likely to be the determining factors in determining whether or not it is considered a business. There are a number of factors that might influence a person's capacity to begin making money, including the scope of their operation, the level of competence they possess, and the initial investment they make.

    If you run your farm as a taxable business, you should give some consideration to the potential effects that selling it could have on your current tax situation before making a decision about whether or not to sell it.

    Capital Gains Tax (CGT)

    The revenues from the sale of any asset, including commercial farms, are subject to a tax known as the Capital Gains Tax (CGT), which is levied by the federal government and collected from those earnings. If you decide to sell your farm at any point in time, you may be required to pay taxes on the profit as a capital gain.

    After deducting the initial investment and adding the profit from the sale, this is the amount of money that was made off of the farm after taking into account the whole amount. Following that, the profit from the investment will be subject to taxation at your highest marginal rate.

    If you decide to sell a farm, there are a few things you may do to reduce the amount of capital gains tax (CGT) that you are required to pay.

    Main Residence Exemption under CGT

    The "primary residence exemption" is utilised during the majority of the process of selling the family home. This is the case in most circumstances. However, in the case of the majority of farms that are in operation, the primary dwelling that is located on the property is regarded as a component of the farm. Given the nature of the case, it is possible to submit a claim for a partial exemption to the authority having jurisdiction over the matter.

    You are going to be required to seek an unbiased valuation of that section of the property in the vast majority of instances.

    Second CGT Exemption: Medical Considerations

    It is possible that you will not be required to pay capital gains tax if you are able to respond favourably to each of the following questions:

    • Are you over 55,
    • Either via retirement or a lifelong inability to work, and

    You may need professional medical advice to find out whether “permanent incapacitation” applies to your circumstances.

    Retirement Exemptions: CGT Exemption No. 3

    The general exemption for retirement plans offered by small businesses is a little bit simpler to qualify for. If you are a small business owner who is retiring and selling your company, you are eligible for the exemption (including farms). This recommendation takes into account the fact that, in comparison to other types of workers, owners of small enterprises, such as farmers, are likely to have much fewer assets put away for their retirement. Because of this mismatch, the ATO might let you ignore up to $500,000 of the capital gain that arose from the sale of your farm. This would be done in order to make up for the fact that you made less money overall.

    Farm Management Deposits

    The FMD Scheme provides primary farmers with assistance in managing changes in cash flows in a more effective manner. Its purpose is to empower primary producers in Australia to become more financially independent by assisting them in mitigating the risks associated with their businesses and ensuring that they have sufficient funds to cover operating expenses during years of low income.

    Primary producers who qualify for the program are given the opportunity to set aside a portion of their income before taxes. This money will be available to them in subsequent years if and when they require it, such as when conditions begin to improve and they need to restock or replant their fields.

    Any income that is put into an FMD account is eligible for a tax deduction in the same monetary year that the deposit was made. Nonetheless, the year in which it is withdrawn is the year in which it is considered to be taxable income (repaid).

    Current Fmd Scheme Eligibility Settings

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    The following prerequisites must be met:

    • In the financial year in which they make the deposit, a primary producer's revenue from sources other than primary output must be lower than $100,000.
    • A primary producer is allowed to possess a total of $800,000 in FMDs at any given time.
    • Under the Banking Act of 1959, a primary producer is permitted to have any number of accounts with any number of Authorized Deposit-taking Institutions (for example, a bank, credit union, or building society) (Cwlth)
    • The primary producer's taxable primary production revenue for the year must be more than the deduction that can be claimed for an FMD in the same financial year that the deduction is made.
    • An FMD must be held for a minimum of one year with an Authorized Deposit-taking Institution in order to continue to receive favourable tax treatment.
    • A main producer could be exempt from this 12-month requirement if they meet any one of the following criteria:
    • have received primary producer recovery assistance under Category C in the wake of a natural disaster as part of the Natural Disaster Relief and Recovery Arrangements; or
    • are experiencing the effects of a lack of rainfall over a period of at least six months in a row.

    The Australian Taxation Office (ATO) administers (and interprets) FMD tax provisions. For more information, call the ATO’s business enquiry line on 13 28 66 or visit the ATO Website.

    Primary producers who have been adversely affected by natural catastrophes must meet the criteria for eligibility to withdraw funds within a year.

    Primary producers who have been impacted by natural disasters are permitted to withdraw their FMDs within the first year after the deposit without forfeiting any taxable benefits (deductions) that they have claimed, provided that they have received direct information about the process.

    Assistance with recovery costs for call producers falling under Category C of the Natural Disaster Relief and Recovery Arrangements.

    Primary producers need to fulfil the following requirements to be able to remove their FMDs before the 12-month mark:

    • have been awarded a Natural Disaster Relief and Recovery Arrangements Primary Producer Category C Measure Recovery, Grant
    • have put the money into an FMD account and claimed a tax deduction for it on their tax return for the year before, before they were eligible for any primary producer Category C measure recovery grant.
    • After first having the primary producer Category C measure recovery grant deposited into your FMD account, you may then withdraw the monies from that account.

    This provision is only accessible in the event that a deposit was made in one fiscal year and a withdrawal was made in the next fiscal year within the span of a year and a half. That is to say, primary producers are allowed to keep the tax benefit they claimed for the FMD in the year before, but the amount of the withdrawal counts toward the primary producer's assessable income in the fiscal year in which they withdraw the FMD.

    Because the primary producers who make the deposit and withdrawal in the same financial year are not eligible for this provision, because the tax benefit associated with that FMD has not been claimed through an income tax return.

    Imagine that a primary producer makes an early withdrawal of their FMDs in accordance with the early access provision for natural disasters. Should this be the case, they will be unable to claim a tax deduction for any additional FMD deposits they make later in the same fiscal year.

    Checklist for Tax Returns and Deductions for Agricultural Workers

    The last thing you probably want to do at the end of a long day of labour, such as cultivating the land, overseeing the care of cattle and other livestock, and thinking about your taxes is usually the last thing you want to do. However, you really ought to! It is one of the wisest things you can do to make sure that you are managing your financial commitments in an accurate and efficient manner, and doing so is not nearly as tough as you might think it is.

    It is absolutely necessary, in order to achieve financial success, for you to keep meticulous records of all of your spending. On your annual tax return, you will be able to claim every deduction that is permissible as a result of this, which will ultimately result in a greater tax refund. However, the most effective course of action would be to seek the aid of an expert. Below, we have provided a checklist of common agricultural worker deductions to get you started; however, the best course of action would be to seek the assistance of an expert.

    If you are an agricultural worker who is employed by a company, you will first want a statement of income from your employer (what was formerly known as a "payment summary" or "group certificate") in order to file your return (previously called "payment summary" or "group certificate"). This report gives a summary of all of your remuneration for the current fiscal year, including salaries, wages, allowances, and bonuses. It covers the period from the beginning of the fiscal year to the end.

    You won't need to keep a copy of this declaration on your own because it will be sent to the ATO on your behalf by your employer. Your employer will be responsible for submitting it. After this has been sent in, we will be able to download the information for you and then help you figure out how much of a deduction you are eligible for.

    What Should I Know About Deduction Claims?

    You should be aware that you are legally entitled to request a tax deduction for any money you spent throughout the fiscal year on goods or services that are directly related to generating income. There are two things, nevertheless, that you really must remember:

    • To begin, you must have been the one who really spent the money; your company cannot have been the one to reimburse you for it.
    • Second, you have to make sure that you preserve some kind of documentation of the expense, such a receipt or an invoice.

    What Deductions Am I Entitled To?

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    As a person who works in agriculture, you are eligible for a wide variety of tax deductions, including the following:

    • All expenses related to the purchase and use of the vehicle, such as fuel, oil, and repairs or maintenance, are included in this category if an all-terrain or utility vehicle, such as a quad bike, is used to traverse sizable areas of land that are inaccessible by car.
    • Car expenses, such as parking fees and tolls, if you travel to different locations for work-related purposes, such as between different fields owned by your employer, or if you need to move heavy/bulky equipment or tools that can't be securely stored on the job site. An example of this would be going from your day job as a fruit picker to a second job working in a warehouse. Travel costs between various fields controlled by your company can also be compensated.
    • Award transport payments will cover any and all expenses, but only if those expenses were incurred while travelling for deductible business purposes.
    • Any expenses incurred when purchasing and caring for any working animals, such as a dog or horse, including vet bills, registration fees, and food, are covered by your employer if you are working with cattle or livestock and need assistance herding them or if your job requires you to provide your own working animal. This only applies, though, if your position calls for you to have a working animal of your own.
    • Any costs related to buying, keeping, and laundering any work clothing items that are either a component of a uniform, distinctive to your employer (such as a shirt with a company logo on it), distinctive to your job (for instance, a sheep shearer wearing attire that repels lanolin and shearers' moccasins), or have protective qualities like gloves, UPF 50 work shirts, steel-capped boots, sunhats, or sunglasses (including prescription sunglasses and anti-glare) (including prescription sunglasses and anti-glare glasses)
    • Any expenditures associated with the purchase and maintenance of firearms, including the cost of renewing your gun license; however, this only applies if the costs have a direct bearing on your position as an agricultural worker (for example, a gun that is used to control vermin on the farm)
    • The cost of registering for a first aid training course if you've been designated as the site's first aid provider and have to finish it in order to help coworkers in an emergency at work.
    • Any costs incurred in purchasing, leasing, or otherwise acquiring the equipment or tools that are especially necessary for your work.
    • The price of maintaining a specialised driver's licence or acquiring a specialised condition on your licence or certificate, such as a forklift licence or heavy vehicle permit, is included here, but not the price of obtaining these things for the first time.
    • Meals during overtime when your employer is required to give you an overtime meal allowance in accordance with the law, an award, or an agreement.
    • If your employer does not already pay for your phone and internet costs associated with work-related use of your personal phone or device, you are responsible for shouldering those costs.
      costs associated with furthering your education on your own by enrolling in classes, training, or seminars that are directly connected to advancing your career in the field in which you are currently employed, such as obtaining a diploma in agriculture
    • Publications such as journals, periodicals, and magazines that are directly pertinent to the work that you do in the agriculture industry
    • Your employer is not required to repay you for travel costs like hotel and meals if you travel for work and need to spend the night away from home (for instance, if you need to transport livestock across a long distance between farms).
    • Any costs associated with unions and professional associations

    What Am I Not Allowed to Claim?

    You cannot deduct a number of significant expenses, including:

    • To your place of employment, you are permitted to wear any regular clothing that could also be worn outside of work (such as shorts, ordinary work shirts, or running shoes), even if you only wear it for work and bought it specifically to wear there. This includes clothing that you have purchased specifically to wear there. This includes work shorts, t-shirts, and sneakers specifically designed for jogging.
    • The cost of getting a driver's licence and keeping it current, regardless of whether or not your job needs you to have one.
    • Any expenses that you have to pay since you have to work while also taking care of your children
    • Whether or not your employer gives you a meal allowance to cover the expense of your meals. The cost of any meals or snacks consumed during the course of a typical workday.
    • The costs associated with your own education, such as course fees, training costs, or seminar registration fees (for example, if you are already employed on a dairy farm but want to change careers and are taking night classes in nursing), etc.
    • Any expenses you have to pay in order to get from your home to your place of employment, irrespective of the distance between the two locations.

    Which Types of Records Am I Required To Maintain?

    Each and every one! Before you submit your taxes, it is essential to keep on top of your receipts and have a complete set of records in order to maximise the amount of money you can get back from the government in the form of a tax refund. This will assist you in getting a greater return on your investment. As a consequence of this, it is a wise decision to come up with a basic approach that can be relied upon, as this will assist you in remaining on top of this situation throughout the entire year.

    It is important to keep in mind that you are not obligated to maintain physical receipts, and that it is acceptable to keep a digital copy (such as a photo of a receipt or an email receipt), as long as the following information can be seen clearly:

    • what the supplier's name is
    • sum total of the outlay
    • the type of goods or services
    • date the cost was reimbursed
    • document's creation date

    In addition, you do not need to preserve receipts for any expenses that are under $10 (so long as the total amount of these charges does not exceed $200).

    What Will Happen If I Err on My Tax Return?

    It's okay, we're well aware that something like this might happen to anyone, and we strongly advocate taking care of it as soon as you possibly can. It's okay, we're well aware that something like this could happen to anyone. Taking this approach is invariably going to yield the best results. In spite of this, while you are compiling your tax return, you need to exercise a great deal of caution when putting together the information and the supporting documents that go along with it. If you want to avoid penalties and possibly even punishment from the ATO, you need to make sure that any deductions you claim can actually be supported by evidence.

    If you prepare your own tax return and find that you have made claims that are either false or not supported by evidence, you should get in touch with H&R Block as soon as possible so that we can assist you in making the necessary adjustments. It's easy to make mistakes that aren't too serious.

    The tax rate for eligible companies will fall from 27.5% to 26% in 2020-21 and then to 25% in 2021-22. ... The Farm Management Deposit (FMD) scheme allows primary producers (with no more than AUD 100 000 of non-primary production income) to defer their income tax liability.

    Under the model GST law, dairy farming, poultry farming, and stock breeding are kept out of the definition of agriculture. Therefore these will be taxable under the GST. Fertilisers an important element of agriculture was previously taxed at 6% (1% Excise + 5% VAT).

    The agricultural land situated in rural area is not considered as capital assets under income tax laws. Since the agricultural land sold by you is situated in rural area and which is not treated as capital asset and any profit received on sale of such asset cannot be taxed as capital gains.

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