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When determining if an activity constitutes a farming or agricultural business, you need to consider whether the activity constitutes a business, and whether it is carried on for farming or agricultural purposes.
Certain deduction and incentive provisions are only available to those taxpayers who can show that they are carrying on farming or agricultural business.
The test is generally met where it can be established that the intention of the taxpayer is to make a profit.
Inland Revenue accepts that any of the following activities are carried on for farming or agricultural purposes:
Inland Revenue rulings and case law have determined that the following activities are not within the definition of a farming or agricultural business:
tems of income derived from a farming or agricultural business include:
Crops
Forestry
The usual principles governing the deductibility of business expenditure apply to farmers just as for any other taxpayer.
Accordingly, items such as telephone rental, newspapers, and the business proportion of motor vehicle expenses, are all deductible to the extent that they are incurred in the production of gross income.
In addition to ‘normal’ business expenditure, there are some deduction rules peculiar to farming:
A basic principle of tax law is that expenditure on improvements to land is capital expenditure and is not deductible for tax purposes (although specific land improvements may be depreciable under the depreciation regime).
However, farmers are allowed to deduct certain expenditure of a developmental nature. Immediate deductibility is available for expenditure incurred on:
While the taxpayer must be engaged in a farming business on the land, ownership of the land is not a prerequisite for a claim for a deduction.
To assist you in meeting the necessary legal or financial requirements or if you consider that any of the issues contained in this fact sheet may affect you.
Disclaimer
Important: This is not advice. Readers should not act solely on the basis of the material contained in this fact sheet which consists of general comments only and do not constitute or convey advice per se. Changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. We believe the contents to be true and accurate as at the date of writing but can give no assurances or warranty regarding the accuracy, currency or applicability of any of the contents.
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