Small farm businesses the main winners

Farmers who run small businesses with a turnover of less than $2 million were the clear winners in the 2015 Federal Budget, but some commentators say WA’s agricultural sector is divided over who benefits.

Tammin farmer and WAFarmers senior vice-president Tony York said while the Budget contained business incentives for small business owners, the benefits of the Budget for larger rural businesses were “muted” at best.

He said the big-ticket item of more than $333 million in targeted support for farmers and communities impacted by drought would be of extremely minimal interest to most WA farmers.

Under the Budget measures announced last week, items of plant and equipment that cost up to $20,000 and are used on the farm are 100 per cent tax deductible for small business owners.

Small business partnerships will also receive $1000 concession on income tax.

WAFarmers has been calling for an increase in the threshold for small businesses from a $2 million annual turnover to a $5 million turnover.

Mr York said under the current threshold, he believed many grain businesses would not be eligible for the Budget tax concessions.

“The threshold has not been indexed since it was frozen at this $2 million level around 15 years ago, ” he said.

“This is definitely a problem. All of these grandiose announcements for small business are effectively dividing the agriculture sector, between small business and others.”

Mr York said the main Budget allowance for farm businesses that were not small business entities was the $70 million tax concession on new fences, dams and fodder storage.

While the fodder storage initiative was welcomed, he said fence repairs were already deductible.

“In practical sense, there is an awful lot of fences and dams that are done as repairs now, meaning they are already 100 per cent deductible, so the benefit of this will be minimal, " he said.

“At this stage, we understand this won’t be claimable for purchases before July 2016, but if the Minister does bring those tax claims forward, then they will be of benefit to grain growers for drought mitigation and infrastructure improvements.”

Mr York said many farmers were waiting on the release of the Agricultural Competitiveness White Paper.

“If it wasn’t for the expectation that the White Paper has a lot it in for agriculture, we’d be pretty flat over the whole Budget announcement. We really are in anticipation of what is in that agricultural white paper, ” he said.

RSM Bird Cameron partner and tax specialist Sandy Hatherly said many farm business were no longer considered small business entities.

“We are seeing a transition of a lot of farming business away from being small business entities due to good seasons and good management and that means very little benefit from the Budget in terms of the $20,000 of capital expenditure, ” he said.

Mr Hatherly said the $2 million threshold was originally adopted by the Australian Labor Party, but was now in urgent need of re-assessment.

“That threshold really needs to be adjusted upwards to at least $3 or $4 million so it can capture a bigger pool of farmers who could enjoy the benefits of these tax incentives, ” he said.

“Looking at the average cropping program, it doesn’t take much these days to tick over that $2 million threshold.”

While Mr Hatherly welcomed the $70 million allocation for fencing, water and fodder storage upgrades, he agreed this would have little impact on farming businesses, given fencing repairs were already considered bonafide tax deductible repairs and maintenance.

National Farmers’ Federation president Brent Finlay said the Budget delivered modest gains for the farm sector through its initiatives that would assist cashflow on-farm, lower business taxes, boost bilateral trade agreement outcomes and recognise challenging seasonal conditions facing parts of the sector.

He said the agriculture portfolio largely held its ground, with funding of about $2 billion, despite an expected decrease in the Government’s tax receipts of about $14 billion.

“This recognises that the agriculture sector is a source of economic strength, linked to growing appetites for safe, clean and sustainable Aussie produce in key Asian markets, " he said.

“The measures announced on trade, tax breaks and small business measures will be welcome news for Australian farmers.”

Federal Agriculture Minister Barnaby Joyce claimed the Budget was a responsible way of bringing profits back to the farm gate.

Mr Joyce said this year’s Budget delivered practical support to primary producers and encouraged money to be spent on-farm to increase production.

He said the accelerated depreciation measures for primary producers (for fencing, water infrastructure and fodder storage), the additional $20,000 instant write-off for small business, the cut in the corporate tax rate as well as the additional 5 per cent tax discount on profits including non-corporate entities, capped at $1000, would make an immediate and profound difference to farming operations right across the nation.

But Opposition spokesman for agriculture Joel Fitzgibbon described the Budget as a “disappointment”, saying the fundamental unfairness of last year’s Budget disaster for rural and regional Australia remained unchanged.

“Australian farmers will be disappointed that the only significant reference to agriculture in Joe Hockey’s Budget speech was yet another re-announcement of the concessional drought loans money his agriculture minister hasn’t been able to spend, ” he said.

AT A GLANCE

Small business:

• Up to $1000 a year discount on taxable income.

• Tax concessions on individual farm purchases up to $20,000.

• Cut in corporate tax rate from 30 per cent to 28.5 per cent.

Drought:

• $333 million pre-announced drought funding measures.

Northern Australia:

• $5 billion infrastructure project includes $100 million for beef roads.

Other:

• Accelerated depreciation measure for fencing, water infrastructure and fodder storage.

• $26.8 million cuts over four years to Centres for Co-operative Research.

• $25 million to help Australian producers access the benefits of free-trade agreements, an initiative called for by the NFF.