Friday, March 29, 2024

IRD puts farmhouse expenses on radar

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Federated Farmers will ask its members what they think of Inland Revenue’s planned changes to tax rules covering their farmhouse expenses.
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IRD wants to reduce tax deductibility levels on these expenses – the likes of electricity, rates, insurance, and repairs and maintenance – from 25% to 15%.

Current rules have been in place since the 1960s.

Feds president William Rolleston said the 25% claim was fair given the round-the-clock, on-call work schedule of farmers and use of the home for a host of farm business activities.

“Any change to tax rules adds more expenses and makes farmers less competitive,” he said.

“Farmers don’t ask for handouts but want fair treatment where they use assets for the farm.’’

Feds will be emailing the membership, seeking guidance on submissions due to IRD by December 22.

IRD wants the new regime in place for the nest tax year, starting April 1.

Farmers use their homes for meetings with a range of businesses providing services including bankers, advisers, stock and station and processing company agents, and staff meals.

Rolleston mentioned catering for shearers as another use, and others have referred to wet-weather changing areas-wash rooms attached to the house.

IRD also wants to cutback on farmers claiming 100% of their home telephone costs, taking that down to 50%.

“I think there will be some farmer push-back on that one,” Rolleston said.

“Telephones are a key part of the farm business and most of their phone time is business related. I would say 90% to 100% or somewhere in between, not 50%.”

The proposals meant added costs for farmers when their dairy and lamb returns had declined.

Ashburton accountant John Falloon said the long-running current regime had been put in place as part of a commissioner’s ruling – it had never been set in legislation.

Farmers had been able to keep the 25% deductibility on costs involving the farmhouse, even after IRD about 10 years ago changed the rules on other businesses that used a home office, limiting claims to 15% costs.

“Any change to tax rules adds more expenses and makes farmers less competitive.”

William Rolleston

Federated Farmers

“That 25% for farmers always seemed a relatively generous claim but it was also regarded as fair.”

The limit on repairs-maintenance costs would not apply to all farmers, Falloon said.

Those farming in partnerships or as sole traders would be affected, but farms trading in a company structure could claim 100% of repair and maintenance costs, and this would continue.

Under the company structure the farmer could pay rent to the company, which claimed full deductibility as the landlord.

The company structure had not been set up for that reason, but was becoming common on farms as part of succession planning arrangements.

Repairs and maintenance could vary from zero to $100,000 one year to the next, he said.

They weren’t cheap and in the current downturn only urgent work would be getting done.

Waipukurau accountant Christine Donald didn’t advocate farmers rushing into to set up companies to avoid any changes to deductibility rules, saying that changing structures also involved significant costs and tax issues.

She said the current system was a fair one but “could see where IRD was coming from” when the comparison was made with other businesses, which generally had to measure up the usable area of their home, and that usually involved a maximum 10% of the total area. Farmers could claim for all of the farmhouse.

“I’m not sure that it is too big a deal, and the amount of money won’t be huge.

“Farmers do get a few tax concessions, especially the income stabilisation scheme which allows them to even-out their incomes,” Donald said.

This compensated farmers for the volatility in their earnings and could result in big tax savings. She wouldn’t want to see that changed.

Falloon said the impression was that IRD were basically just tightening up wherever they could see a target.

“It’s the great bureaucratic machine, but the rules are pretty fair as they are.”

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