Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


The Importance of Budgeting & Tax Planning for Farmers

Media Release


The Importance of Budgeting & Tax Planning for Farmers


March 26, 2013


The financial year-end is near for farmers, but there is still time for them to manage profit levels in a way that could help avoid potential high interest penalties on tax payments, says Neil McAra, Managing Principal - Southland, for Crowe Horwath.

“Dairy farmers in particular should be providing for increased tax liabilities,” said Mr McAra. “In certain circumstances, if you haven’t paid enough tax during the year, the IRD can charge for use of money interest at a current rate of 8.4 per cent. Decisions on whether you incur expenditure before or after year-end can be significant.”

Mr McAra noted that farmers considering expenditure on items such as repairs to drains, tracks or additional fertiliser, should consider bringing these forward to enable a deduction in the current year. Repairs and maintenance were 100 per cent deductible and capital items depreciable over the life of the asset, he said. And there were strict requirements around what constituted repairs and maintenance, as well as specific regimes that provided concessions for farmers that differ from the usual capital/revenue distinctions.

“It pays to understand how these distinctions work and who they apply to, particularly where different entities own the land and carry on the farming activity,” he said.

Mr McAra said that having a budget at the start of the year and updating a forecast during the year was essential in order to have a clear understanding of the ability to manage tax payments.

“At this stage in the year, farmers should have a reasonable estimate of where their year will close out, and be making the necessary tax payments based upon that,” he said.

“If you are trading through a company, trust or an individual with high income levels, it is likely that you will be exposed to potential use-of-money interest penalties,” said Mr McAra. “You need to talk to your accountant now about ensuring you have met these obligations or have put processes in place to understand your requirements.”

Budgets are not only important for managing tax payments, but to understand cash flow needs, he said, especially for dairy farmers with strengthening cash flow over the next six months.

“The completion of a budget for next year will give them a greater understanding as to whether they look to reduce debt, undertake some capital expenditure or utilise the funds in some other capacity. Without the budget, they could be making decisions now that will strain their cash flow for the following season.”

Mr McAra said that even if cash flow did not permit meeting tax payments, there were options around financing the payments that could reduce the exposure from 8.4 per cent to around 6.5 per cent by utilising tax-pooling companies.

“Farming is a volatile business from year to year,” he said. “For example the dairy payout this year is up 30 per cent on the previous year and likely to be down 20-to-30 per cent next year. And interest rates are likely to increase over the next 18 months by two basis points. Without accurate budgets, farmers can be making poor business decisions.

“Budgeting need not be complicated and with the right advice can add value to a farm business. Businesses that budget, on average outperform those that do not.”


ENDS


About Crowe Horwath


Crowe Horwath New Zealand is the largest provider of practical accounting, audit, tax and business advice to individuals and small and medium businesses from a comprehensive network of over 20 offices.

Crowe Horwath is part of a global accounting network that delivers high quality audit, tax and advisory services in over 100 countries. We are the relationship that you can count on - large enough to offer a range of expertise and skills - and small enough to provide the personal touch.

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Housing: Affordability Drops 14%, Driven By Auckland Prices

Housing affordability across New Zealand fell 14 percent in the year ending November 2014, with Auckland’s lack of affordability set to reach levels it hit during the height of the global financial crisis, according to the latest Massey University Home Affordability Report More>>

ALSO:

The Dry: Fonterra Drops Forecast Milk Volumes By 3.3 Percent

Fonterra Cooperative Group, the worlds largest dairy exporter, reduced its milk volume forecast for the 2014-2015 season by 3.3 per cent due to the impact of dry weather on production in recent weeks. More>>

ALSO:

Strike: Lyttelton Port Workers Vote To Escalate Dispute

Members of the Rail and Maritime Transport Union (RMTU) at Lyttelton Port today voted to escalate their industrial action. Around 200 RMTU members have been operating an overtime ban since 17 December and today they endorsed a series of full withdrawals of labour at the port. More>>

ALSO:

Scoop Business: NZ Dollar Falls To 3-Year Low As Investors Favour Greenback

The New Zealand dollar fell to its lowest in more than three years as investors sold euro and bought US dollars, weakening other currencies against the greenback. More>>

ALSO:

Scoop Business: NZ Govt Operating Deficit Smaller Than Expected

The New Zealand’s government’s operating deficit was smaller than expected in the first five months of the financial year as a clampdown on expenditure managed to offset a shortfall in the tax-take from last month’s forecast. More>>

ALSO:

0.8 Percent Annually:
NZ Inflation Falls Below RBNZ's Target

New Zealand's annual pace of inflation slowed to below the Reserve Bank's target band in the final three months of the year, giving governor Graeme Wheeler more room to keep the benchmark interest rate lower for longer.More>>

ALSO:

Get More From Scoop

 
 
Standards New Zealand

Standards New Zealand
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news