Tax Tips for Farmers

Unlike many other industries, farming businesses have access to a range of unique tax planning tools that can make a big difference to their bottom line. At the same time, farmers often face tax consequences that hit harder — especially when it comes to trading high-value plant and equipment.

Here are a few practical strategies we’re discussing with our farming clients right now to help manage taxable income and improve cashflow.

Prepayments: Bring Forward a Deduction

One simple option is prepaying expenses before 30 June. Many rural suppliers offer prepayment options, and primary producers can generally claim a full tax deduction in the year the payment is made.

To qualify:

• The payment must be made before 30 June
• It must relate to a service period of 12 months or less
• It must be for operational costs like fertiliser, chemical or fodder - not capital items like machinery

But don’t forget to weigh up the cash flow impact. If prepaying ties up too much working capital, it could limit your flexibility heading into the next season — especially if opportunities or challenges crop up.

Farm Management Deposits (FMDs): Smoothing Out the Ups and Downs

FMDs are a valuable tool for managing income fluctuations due to seasonal or market conditions. They allow eligible farmers to defer tax by shifting income from a high-income year to a future, lower-income year.

Here’s how they work:

• The deposit is deductible in the year it's made (provided it's held for at least 12 months)
• It becomes taxable income when withdrawn
• There's an $800,000 cap per individual
• If your non-farming income exceeds $100,000 in a year, you're not eligible

Used wisely, FMDs can be a powerful buffer for those unpredictable years.

Forced Livestock Sales: Know Your Options

Unfortunately, adverse weather conditions — like floods or drought — have forced many farmers to destock earlier than planned.

If you’ve had to sell livestock due to these events, there are two potential tax relief options:

• Spread the profit over five years
• Or defer the profit for up to five years (if you plan to restock)

Which option best depends on your future plans and financial position — so this is definitely something to work through with your adviser.

Depreciation and the TFE Hangover

During COVID, many farmers took advantage of the Government’s Temporary Full Expensing (TFE) rules — allowing immediate write-offs on big-ticket machinery purchases.

The issue now? When it’s time to upgrade, there can be an unexpected tax sting.

Here’s a simple example:

• In 2022, you bought a tractor for $600,000 and wrote it off fully under TFE
• In 2025, you trade it in for $300,000 and buy a new tractor for $500,000
• You'll only get a $75,000 deduction on the new tractor (15% under current rules)
• But the $300,000 trade-in is fully taxable, as the old tractor's written down value is nil
• That's a net $225,000 added to taxable income

It’s a sharp reminder that asset changeovers can carry real tax implications — especially in a capital-heavy industry like farming.

Speak to your accountant before upgrading machinery. A bit of forward planning can help you avoid nasty surprises.

Final Thoughts

Tax planning isn’t about ticking a box — it’s about making smart decisions for your business’s future. Whether it’s prepaying expenses, using FMDs, managing livestock sales, or upgrading equipment, the right approach can lead to meaningful savings.

It’s not too late to put strategies in place for this financial year. If you’d like to talk through your options, get in touch with your accountant soon — ideally before the rush hits in late June.