Good seasonal conditions and strong commodity prices had already loaded the gun in a farm spending frenzy, but the federal government’s investment incentives pulled the trigger.
The shopping spree has left the yards and showrooms of machinery dealerships bare, while silo manufactures can’t find enough staff to meet demand and shed builders are flat out keeping up with orders.
Between 2019 and 2020, NAB’s financing for agricultural equipment grew by 130 per cent, and data from the bank’s entire business customer base shows tractors and irrigation equipment topped the list, beating out forklifts and coffee machines.
“But there are a lot of unknowns. The difficulties and challenges of COVID-19 mean stock can wait on docks much longer and we’re still feeling the impact of the Suez Canal blockage.
“Farmers generally have two lists — a shopping list and a wish list. And because of these government incentives they’ve bought their shopping list purchases forward and they’ve been able to dig into the wish list.
“Factory orders for tractors manufactured in Australia and overseas have blown out from six months to 12 months and the demand is coming from farmers who’ve seen the financial advantage from these tax incentives.”
Last year, the government expanded the instant asset write off by lifting the value of eligible assets from $30,000 to $150,000 and the businesses that could use it from those with an annual turnover of less than $50 million, up to $500 million.
It meant businesses could claim an immediate deduction for an asset purchased between March 12 and December 31, 2020, with an additional six months to first use or install that asset.
In its economic-support package for COVID-19, the government also introduced Backing Business Investment which gave businesses more options for deprecating assets faster than usual.
Then, in last year’s federal budget the government introduced temporary full expensing, which allowed businesses to fully depreciate an eligible asset in a single tax year from October 2020 to June 2022.
“”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,” Treasurer Josh Frydenburg said in his budget speech last year.
Western Victorian lamb producer Tim Leeming installed an undercover sheep yard at one of his properties in 2018.
The roof meant working with his livestock could carry on rain, hail, or shine, in much better conditions than would otherwise be the case in heavy rain or intense sun.
Plans to build more were brought forward last year.
“Having those tax incentives allowed us to accelerate some of the projects we had in our plans for our farming business,” Mr Leeming said.
“And that stimulated a lot of our local economy with builders, shed builders, and concreters. It was a real boost to our local and regional economy.”
Mr Leeming plans to use the temporary full expensing measure on the new sheds, which would previously have been depreciated over many years.
But RSM Australia associate director Tracey Dunn has been concerned with the amount of advertising pushing farm business to “take advantage” of these incentives.
“The concern comes from the lack of tax expertise that these businesses [possess while] promoting ‘buy now’ and ‘make the most of this measure’,” Ms Dunn said.
“Unless you know exactly the circumstances of that client or that taxpayer, you don’t know what the outcome is going to be.”
Ms Dunn “reads tax legislation for fun” and does not find any joy in the complexity of the legislation behind the federal government’s investment incentives.
“We not only have the instant asset write off, the Backing Business Investment measure, and temporary full expensing, but they come in at different timelines.”
Ms Dunn said farm businesses structured as a trust may also run into issues.
“If [a trust] uses the full deprecation of an asset, or the instant asset write off, it might end up declaring a loss,” she said.
“If there is a loss in the trust, and the trust has investment assets that are generating franked income, the franking credits will be lost and the beneficiaries will miss out.”
In addition, when the depreciated assets are sold later on, the entire proceeds of the sale will count as income, and businesses could face hefty tax bills.
“If the business is having a difficult year, that could cause issues,” Ms Dunn said.
Thank you for dropping in to My Local Pages and checking out this story regarding “What’s On in the Ballarat Region called “Farmers spending up big on back of budget tax incentives”. This news update was brought to you by My Local Pages as part of our local stories aggregator services.
#Farmers #spending #big #budget #tax #incentives