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Primary Production Assets & Depreciation

Raj Rana • Mar 30, 2021

Cattle farms, vineyards, sheep stations and poultry farms are just some examples of the common primary production industries across the country. The sometimes-unforgiving Australian climate means those in the business of primary production should always leverage available deductions to help their cash flows.


The general rules of depreciation usually apply to assets used in these industries. However the Australian Taxation Office (ATO) has a number of special rules for depreciating the following assets:


  1. Water facilities
  2. Fencing assets
  3. Fodder storage
  4. Horticultural plants


One set of rules doesn't cover all these assets. Therefore, at BMT we look at each asset individually to ensure its particular rules are applied correctly.


Water facilities

Dams, tanks, tank stands, bores, wells, irrigation channels, pipes, pumps, water towers and windmills are all examples of water facilities. A primary producer can fully deduct the value (or cost) of a water facility if it was incurred after 7:30pm on 12 May 2015 in the same year. However, previous rules apply if the water facility was purchased before this. This means the owner would instead deduct one-third of the cost in the year of purchase and one-third in each of the following two financial years.


Fencing

Fencing covers the asset itself and any structural improvement to a fencing structure (e.g. alteration, addition or extension). Like water facilities, a primary producer can fully deduct the value (or cost) of a fence if it was incurred after 7:30pm on 12 May 2015 in the same year. To be eligible, the fencing must be used wholly for carrying on a primary production business. For example, if the business owner also lived on the property in a farmhouse that had a personal garden with fencing, they couldn't claim this.


Fodder storage

Silos, hay sheds and dried grain bins are just some examples of fodder storage assets. To be eligible for the primary production rules the asset must pass the 'primarily and principally test'. A fodder storage asset will only pass this test if its main purpose is to store fodder. This means if a shed stored farm equipment, but once or twice a year it stored dried grain due to busy seasons, it wouldn't pass the 'primarily and principally' test. If a primary producer purchased or incurred an expense on their fodder storage on or after 19 August 2018, they can immediately deduct the total cost in the same year. This also applies if it was incurred before 19 August 2018 but first used or installed after this date. If a partial deduction has already been claimed in a previous income year, the previous year's tax return will need to be amended to claim a deduction for the full amount in the year it was incurred.


But what happens if a primary producer acquired a fodder storage asset in June 2018 and installed it after 19 August 2018? In this scenario, the owner would have deducted one-third of the asset's total in their 2017-18 tax return. However, given the new rules they would need to go back and amend this tax return and claim the amount in full.


Horticultural plants

Some examples of horticultural plants include grapevines, herbs and apple trees. Primary producers using these types of plants in the business of horticulture can claim depreciation on them. This is provided that they own the plant, and the expense was incurred after 9 May 1995 (or 1 October 2004 for grapevines). The deduction is based on the total cost of establishing the eligible horticultural plant. Some of these costs can include acquiring and planting seeds, ploughing, fertilising and soil enhancement. The effective life of the plant is what determines its depreciation. Primary producers can work out the effective life of a plant or refer to Tax Ruling 2020/3. An instant full deduction of the total cost is only available in the plant's first commercial season if the effective life is less than three years. However, it's important to note that if the primary producer is also a small business entity, they must use the uniform capital allowance rules to depreciate any horticultural plant.


Primary production assets and temporary full expensing

Since the introduction of the temporary full expensing policy, we have received many enquiries regarding how this policy works for primary production assets that usually qualify for the special rules. These assets are excluded from the temporary full expensing policy, unless the primary producer is a small business entity that opts to use the simplified depreciation rules for the assets.


Article Credit - BMT Tax Depreciation is Australia's leading supplier of residential and commercial tax depreciation schedules. 


Contact us today on 07 3800 0807 to discuss how we can help you with Assets Deprecation for Farms

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By Raj Rana • 13 Dec, 2021
Whether you're thinking about purchasing your first investment property, adding to your portfolio or turning your home into an investment, you need to know what tenants want. 1. Location It's impossible to know what a specific tenant will want location-wise. But this is where it's important to identify your target tenant market and what they want in their location. For example,, families may be looking for school districts, while students will be looking for accommodation close to learning institutions or with transport routes. 2. Safety and security Everyone needs to feel safe in their own home. Tenants will want a property with secure locks and doors, lockable windows and window coverings for added privacy. Looking into the safety of an area could also be a good move when finding an investment property if you're unfamiliar with the area. Research crime statistics and history to get a gauge on the area and how this may impact potential tenant demand. 3. Move-in ready condition The last thing a tenant wants to do is submit maintenance and repair requests while they are in the process of moving house. Getting all the little things sorted before they move in is a must. Work through any items with your property manager and ensure everything is covered. The benefit of doing this early means a more comprehensive entry condition report, plus you get to claim any maintenance and repair request as an instant tax deduction in the same financial year. 4. Renovations and upgrades A modern and aesthetically appealing space doesn't just appeal to more tenants, it allows you to charge a higher rental rate to improve the cash flow of your investment. The roadblock to this is always going to be the costs involved. Renovations and upgrading a property isn't cheap. But claiming property depreciation as a tax deduction at take time can make a big difference to cash flow. Depreciation is the natural wear and tear of property and assets over time, and is the second highest tax deduction available to investors after loan interest repayments. When you renovate a property or upgrade an appliance like a dishwasher with a new one, you can claim depreciation on the improvement. Depreciation is claimed each financial year across an asset's or structure's depreciable lifetime. But just because something needs to be depreciated doesn't mean you have to wait years to claim back the full amount. Depreciation incentives like the 'immediate deductions' allows you to instantly claim some assets that cost less than $300. For example, if you purchased a new ceiling fan that costs $250 for your investment property, you could claim its full cost instantly in the same financial year. To learn more about how depreciation works for renovations, contact our office on 07 3800 0807 Article Credit in conjunction with BMT Tax Depreciation. BMT Tax Depreciation has been working in the property investment industry for over twenty years.

7 Things To Do Before Renting

By Raj Rana • 10 May, 2021
Are you thinking about moving to a new house but want to hold onto your current property? Turning it into an investment for the short or long-term can be a good option while increasing your cash flow. But before you do, here are seven things you need to do before renting out your home. 1. Speak to the team at Devonshire Accountants Speak to our expertise team that will guide you through the various deductions available and any negative gearing calculations in detail. Its an important step in planning the tax implications that you can have when preparing your tax return. Our team will also fully explain the deductions available and compliance that is required by you towards the Australian Taxation Office (ATO) 2. De-personalise the property While the property is still yours, it's important to make your future tenants feel like it's their own. Happy tenants will go the extra mile to look after it. This means removing the personal items in the property from when it was your home. Remove the kids' height measurements from the walls, the family dog's outdoor kennel and have all mail redirected. 3. Fix those 'maintenance request' risks early If it's broken, fix it. It mightn't seem like a big issue – maybe it's just a small crack in the wall or peeling paint – but putting it off is just creating a future problem for yourself. Making it a future problem may also make the small issue into a big one. For example, a tired-looking deck now could just need re-oiling but leaving it for later could result in a full (and costly) deck replacement. 4. Do smart improvements If you're thinking about making some slight improvements to your property before renting it out, keep improving your rental return and tenants in mind. Smart improvements will increase tenant interest and the amount of rent you can charge. For example, if your tenant market is young families, installing a bathtub can be a good choice. Easy-to-clean benchtops and flooring options are always a winner with tenants, too. An additional point to keep in mind is the timing of the improvement. If you make an improvement while you still live in the property, you won't be able to claim depreciation on any new plant and equipment assets. So it might be best to wait until you have moved out. 5. Clean Your future tenants need to leave the property in the state it was first leased in (allowing for fair wear and tear). Your property manager will complete a condition report to ensure this happens. To make sure you can keep your tenants accountable, it's important to also do your own part. Your property manager could also recommend a reputable cleaner to get the job done. 6. Update your insurance policy Your owner-occupier home and contents insurance won't cut it when the property is an investment. You need the appropriate landlord insurance policy. Landlord insurance will cover you for many insured events, including those unique to investment properties like tenant damage and loss of rent. Insurance policies differ between providers, so it's important to read the fine print when choosing the best-suited policy for you. 7. Get a depreciation estimate Too many people are missing out on claiming thousands in depreciation deductions. Depreciation is the natural wear and tear of a property and its assets over time. As a property investor to-be, you can claim this depreciation as a tax deduction each financial year once the property is available for rent. When you make your home an investment, contact a specialist quantity surveyor, such as BMT Tax Depreciation, to provide a free depreciation estimate. This could uncover thousands in deductions that you could claim. To learn more about depreciation estimates, please contact BMT Contact us today on 07 3800 0807 to discuss how we can assist you with your Investment property.
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