The Treasury Laws Amendment (Supporting Australian Farmers) Bill 2018 (the Bill) implements the Government’s announcement to allow primary producers to immediately deduct the cost of fodder storage assets. The measure is intended to assist farmers to future drought-proof their businesses by making it more affordable to invest in fodder storage.
The measure forms part of the ‘next phase’ of the Government’s drought assistance policy announced on 18 August 2018. The announcement also included:
According to the Explanatory Memorandum, the measure implemented by the Bill is expected to cost $75m over the forward estimates period.
Generally taxpayers are unable to immediately deduct expenditure on capital assets used to earn assessable income. Instead they can deduct an amount equal to the decline in the value of the asset over time. To calculate the deduction, a taxpayer applies the rules under the uniform capital allowance provisions in Division 40 of the Income Tax Assessment Act 1997 (ITAA97). However, in some cases, special concessions apply for certain businesses or entities, as is the case for taxpayers carrying on a primary production business on land in Australia (Subdivisions 40-F and 40-G of the ITAA97).
In particular, under subsection 40-525(3) and section 40-548 of the ITAA97, a taxpayer is entitled to deduct expenditure incurred on the construction, manufacture, installation or acquisition of a fodder storage asset over a period of three years, if the fodder storage asset is primarily and principally used in a primary production business conducted on land in Australia.
A ‘fodder storage asset’ is defined under subsection 40-520(3) of the ITAA97 as an asset or a structural improvement, or a repair of a capital nature, or an alteration, addition or extension, to an asset or a structural improvement, that is primarily and principally for the purpose of storing fodder.
The term ‘fodder’ is not defined in the ITAA97 and takes its ordinary meaning—according to the Explanatory Memorandum, ‘fodder refers to food for livestock, such as grain, hay or silage. It can include liquid feed and supplements, or any feed that could fit into the ordinary meaning of fodder’.
A ‘primary production business’ is defined in subsection 995-1(1) of the ITAA97 and includes, among other things, a business of:
- maintaining animals for the purpose of selling them or their bodily produce
- manufacturing dairy produce from raw material and
- conducting operations relating directly to taking or catching fish, turtles, dugong, bêche-de-mer, crustaceans or aquatic molluscs.
Changes and comments
Item 2 of Schedule 1 to the Bill repeals current section 40-548 of the ITAA97 which deals with how a taxpayer calculates the decline in value of a fodder storage asset. The current provision entitles the taxpayer to deduct one third of the expenditure in the first year and one-third in each of the following two income years. Instead, item 2 inserts a new calculation that allows the taxpayer to deduct the amount of capital expenditure incurred on the construction, manufacture, installation or acquisition of the fodder storage asset in the first year.
The amendments made by the Bill apply to a fodder storage asset first used or installed ready for use on or after 19 August 2018 (the date on which the measure was announced).
The Government noted in its announcement that the measure ‘complements the $20,000 instant asset write-off already available for small businesses’, which, among other things, allows small business entities (SBE) to immediately write-off most depreciating assets that cost less than $20,000 each, that were bought and used, or installed ready for use, from 7.30pm (AEST) on 12 May 2015 until 30 June 2019. An SBE is a small business with an aggregated turnover of less than $10 million from 1 July 2016 onwards or $2 million for previous income years. While the measure contained in the Bill does complement the instant asset write-off available to SBEs, SBEs that are also primary producers must choose on an asset-by-asset basis whether to apply the primary production concessions or the SBE concessions (subsection 328-175(3) of the ITAA97).
The National Farmer’s Federation (NFF) welcomed the Government’s package noting that ‘many of the measures announced today are available to all farmers, regardless of income and asset base, and will deliver a valuable recouping of costs, at a time when cash flow is low’.