27 Jan Appreciate a Good Depreciate
“Reading this brief could be the best decision you make in the new year – a must read for those looking to take their business to the next level!”.
By Charlotte Thomson
Depreciation Schedules are just one way in which Robinson Sewell Partners aim to put the money back into their client’s pockets. RSPs’ business adviser and financial analyser, Michael Stout, is bringing his experience in depreciation schedules to the partnership. Michael believes it’s an important part of the agricultural business – one that many farmers don’t know about.
What is not generally known is that when a farm is acquired (or transferred), assets can be valued and depreciable infrastructure can be claimed as a non-cash tax deductible items from the year the farm changed hands. This does not include the land, rather, infrastructure attached to the land such as silos, fences, buildings, sheds, dams, yards and houses.
“When farmers buy a farm or it’s transferred over to them they are missing out on tens of thousands of dollars’ worth of tax deductions – in some cases hundreds of thousands.”
Michael says he sees many of these cases where farmers didn’t realize their assets could be claimed as tax-deductible expenses.
“We’ll go in and we’ll categorise and photograph all the assets and have our quantitative surveyor put a value on them and separating them from the land value. By dividing up the land and assets, and placing the value on these assets into a depreciation schedule, this gives the accountant a depreciable expense figure that is included in the profit and loss each year.” Michael says this is where Robinson Sewell Partners having a good relationship with your accountant is important to achieve this goal for our mutual clients.
In addition, Michael stresses the transfer doesn’t have to happen in the last 12 months. The depreciation schedules can be claimed for up to 3 or 4 years prior as the deprecation benefits are still there.
“For example, I calculated a depreciation schedule for one client where the property was $2.7 million for the farm along with $1 million worth of assets to be depreciated. In the first year, there was $56,000 worth of tax deductions taken off their taxable income. ” He says if the depreciation schedule had been applied over a 40 year period, a cumulative tax deduction of $760,000 could have been saved.
Michael believes in terms of reducing your taxable income using depreciation schedules is one of the best expenses you can apply to your profit and loss to improve your overall cash position in the business.
Please call Michael anytime if you wish to discuss your case (contact Michael Stout)