With the end of your financial year fast approaching, we need to consider if incurring costs now will be beneficial to your income tax position.
There are some real opportunities and at the same time some myths around spending before the end of the month.
What you need to consider?
Stockpile Consumables on farm but no more than $58,000 on hand
Consumables are fencing materials, drenches, fertiliser, fuel, supplementary “bought in” feed, water supply materials, chemicals, etc.
If you have a total of $58,000 (excluding GST) of consumables on hand or less before your balance date you can claim all of them as an expense and decrease your profit for the tax year.
You are required to have these consumables on farm rather than booked up at the store.
Make sure you don’t have in total more than $58,000 worth of various items otherwise this doesn’t apply, and you have to carry the total value of the consumables forward to the next season.
So, if you don’t have many consumables on hand and you will need these items in the coming months, buy some and have them on hand by balance date.
Assets under $1,000
As part of the tax changes made in response to Covid-19, assets purchased from 17 March 2020 to 16 March 2021 with a value of less than $5,000 (GST exclusive) were fully deductible in the year of purchase.
As it is now after 16 March 2021, we are now able to claim assets up to $1,000 GST exclusive when they are purchased for income tax.
These would have usually been depreciated over a few years but now you can claim them all upfront in the year you bought them.
Examples could be: phones, laptops, trailers, calfaterias, implements, motorbikes, tools etc
A Common Myth
Don’t buy large capital assets before balance date just for income tax reasons.
A common myth is that if you buy big items such as a tractor just before balance date it will help reduce your tax.
Depreciation is calculated monthly so in reality you will get one month’s worth of depreciation which won’t help much at all. If you trade your old tractor in on the purchase of the new tractor there could be income arising from depreciation recovered so it could actually increase your profit rather than decreasing it.
In summary don’t buy big assets just to reduce tax just before balance date, it doesn’t really make a difference.
If you have any questions please do not hesitate to contact the office.