Read grain tax fine print
Ill-informed grain marketing decisions could have serious tax implications for a farm business, according to RSM Bird Cameron partner Sandy Hatherly.
Mr Hatherly said growers were often faced with a bewildering array of alternatives offered by various grain buyers, particularly during the busy harvest period, and must be aware of the tax implications of each grain sale.
But he said planning for tax should begin now, not in June.
"Different marketing choices mean different tax implications," Mr Hatherly said.
"By using the correct marketing methods you can really set your business up well for the next financial year."
Mr Hatherly said growers needed to read the details of any grain contract.
"What is really important is to understand at what point the title for the grain passes between the parties," he said
"This is critical for determining in which year taxable income occurs."
Mr Hatherly said any grain left on farm at the end of the financial year was considered trading stock by the Tax Department, and was therefore taxable.
He said trading stock had to be valued as part of determining taxable income each year.
"Grain that is still owned at the end of the financial year, even though it may be warehoused off-farm, has to be valued and included in taxable income," he said.
"The grain can be valued at either the cost of harvesting the product, market value or replacement value, which ever works in the favour of an individual farm business."
Mr Hatherly said this cost could then be claimed, or deducted, in the following financial year.
"We have worked out, over many years of talking to farmers and farm consultants, that the cost of harvesting a crop is much less than $50 per tonne," he said.
"There is no need to inflate taxable income by using too high a cost value for grain on hand, when a lower value will be adequate."
Mr Hatherly said grain farms with annual turnovers of less than $2 million were considered Small Business Entities provided also they still used the cash basis to account for taxable income, had originally elected to utilise the Simplified Tax System from July 1, 2001, and had also qualified as a small business every year since then.
Mr Hatherly said these situations were treated differently to other business entities.
"This is an important distinction to make because the tax treatments can be completely different between the two business structures for different grain contracts," he said.
Mr Hatherly warned non-small business entities to be wary of deferred payment contracts, because once ownership of the grain had been transferred, it was considered taxable.
"As opposed to deferred delivery contracts, deferred payment contracts mean the grain has been delivered but you don't receive payment until July. So even though you don't receive the income, in many cases you still have to pay tax on this contract as at 30 June," he said.
"Growers need to look at the best ways to market their grain against a large number of buyers in this deregulated market.
"The name of the game is to minimise tax while still achieving a good return."
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