Budget keeps farm asset write-off options but big gear penalised

From July 1 equipment which qualifies for instant tax write-offs, or temporary full expensing, must be priced at $20,000 or less.

It replaces the current unlimited price arrangement introduced during the COVID-19 pandemic.

Traditionally the instant asset write-off was limited to equipment worth just $1000 or less.

Treasurer, Jim Chalmers, actually surprised the farm sector by continuing the popular write-off option for small business with less than $10 million annual turnover, albeit at a much more restrained level.

However, he also disappointed many who had hoped for a graduated price ceiling decline over two years given that many producers have been unable to get big gear or infrastructure investments delivered and installed before June 30.

"I doubt if a $20,000 asset purchase is really meaningful enough to drive much in the way of productivity improvements on farms, compared with some of the big machinery investments farmers could be looking at," said agribusiness advisory director with the RSM Australia accounting group in Toowoomba, Will Laird.

"But it will still get you a quad bike or similar-sized useful gear."

A potential preferable option could have been to allow a partial instant write-off on big ticket infrastructure and machinery, for example, $50,000 or $100,000 on a $300,000 or $500,000 investment.

Farmers will, however, have access to a bonus second 20 per cent instant asset depreciation option if their purchase qualifies as an energy efficiency asset investment (worth less than $20,000) from July 1.

"I'd expect a lot of farmers will be motivated to buy bigger gear during the next six weeks before the current write-off period expires - if the equipment is available," Mr Laird said.

A key incentive would be that buying the same big asset next financial asset would suddenly cost significantly more if the transaction involved upgrading and trading in a tractor or header bought in recent years under the current write-off arrangements.

Mr Laird said buying a new $1m header, combined with a trade-in of an existing (fully depreciated) harvester worth $750,000 would likely see the exchange incur a tax cost of $150,000.

Changing rules around self-funded superannuation would also force farmers to review their options, with the Treasurer confirming he would be taxing an extra 15pc from superannuation balances above $3m by 2025.

"There's been a lot of consultation and lobbying against this tax on unrealised earnings because it hits farmers particularly hard when their farmland assets represent much of their pension fund asset, but unfortunately it appears to be a central piece of the government's policy," Mr Laird said.

"It's a tax measure targeted at high income earners, but unfortunately it will also capture farmers with land assets rising in value, but who don't have big earnings or cash reserves."

Farmers in the over-65 retirement phase will also need to ensure their self managed superannuation pool has enough liquidity to pay out 5pc of the fund's value in annual distributions - an increase from the 2.5pc payout rule which has applied for the past few years.

South Australian director at the Murray Nankivell accounting group, Megan Inverarity, noted her firm had many baby boomer farmers who had been happy to withdraw less from their super fund because its assets were primarily land, leased back to the farming enterprise.

"Those lease earnings don't always generate much cash," she said. "They may now have to sell some land, or any shares they have."

Ms Inverarity described the Albanese government's first full scale budget as a 'getting back to normal' document, recovering some of the offsets introduced during the pandemic," she said.

However, while the shrunken asset write-off option was disappointing for some, she noted farmers could still invest in water saving infrastructure and fodder and grain storage facilities, and claim an instant asset depreciation at tax time as these were drought preparedness initiatives.