07 Jun Farm Depreciation – The Silver Bullet
Michael Stout brings us two client case studies how strategic thinking around the depreciable infrastructure on farms can be captured to materially reduce the tax obligations of a profitable operating farming business.
Client Case study # 1
Client Position:
A rural client after four good seasons had used up all of their tax losses that they incurred from a run of dry years. They were now in a position where their business was very profitable and they were looking for a tax effective ways to reduce their tax liability. As they had purchased some farms over the last several years their accountant suggested that they speak to RSP about depreciation schedules for the assets on the farms that they had purchased.
Robinson Sewell Depreciation Solution:
Robinson Sewell Depreciation conducted a thorough inspection of all the assets that were on the farms when they purchased them. This included houses, machinery sheds, shearing sheds, barns, silos, sheep/cattle yards, water tanks, water troughs, dams, fences and gates. From the on farm inspection our specialized agribusiness quantity surveyor then compiled valuations on each of the assets and provided a tax schedule for each property which was ATO compliant. The total depreciation that the clients were able to claim over the “effective life” of the assets was $2,017,000 with $89,500 claimable as depreciation in the first year.
Case Study # 2
Client Position:
Andrew, a neighbor that had recently completed a depreciation schedule on the farm that he had recently purchased, referred Joe to Robinson Sewell Depreciation. Joe had just completed a intergeneration transfer with his parents on one of the families grazing properties and was interested in getting a depreciation schedule done on the farms to reduce his taxable income but was not sure if it would be worth while or not. His comment was that “there were only a few sheds, sheep yards and fencing”.
Robinson Sewell Depreciation Solution:
Robinson Sewell Depreciation carried out an inspection of the farm, which contained a shearing shed, machinery shed, two hay sheds, sheep yards, two silos and fencing. The end result once the ATO compliant schedule was completed was $458,000 in total depreciation with $29,500 claimable as depreciation in the first year. Joe had not taken into account how many kilometers of fencing was on the farm. He was very happy with the result.
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