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Bushfires and Primary Producers

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Abnormal Income

How does a primary producer treat income from a forced sale of livestock as a result of bushfires ?

A primary producer can elect to spread profit from the forced disposal or death of livestock over a period of five years. Alternatively, you can elect to defer the profit and use it to reduce the cost of buying replacement stock or to maintain breeding stock for the purpose of replacing the livestock, in the disposal year or any of the next five income years. You need to include any unused part of the profit in your assessable income for the fifth income year.

How is income treated from having to do two wool clips owing to the bushfires ?

Tax relief is available in respect of income from the sale of two wool clips arising in an income year because of an early shearing caused by drought, fire or flood. You can elect to defer the profit on the sale of the wool clip from the advanced shearing to the succeeding year.

How do I treat insurance proceeds for loss of business stock, such as trading stock, destroyed by the bushfires ?

As a general rule, where the cost of the insurance premium has been claimed as a deduction, payments received pursuant to a claim under the policy will be treated as assessable income.

You can make an election to include insurance pay-outs for loss of livestock or of trees that were assets of a primary production business in your assessable income in equal instalments over five years. If you do not elect to do this, the whole amount is taxed in the year of receipt.

Elections can be made before or on the date of lodging the first return after receiving the insurance payment.

Farm Management Deposits Scheme

What will be the effect of withdrawing funds from a farm management deposit (FMD) in this emergency ?

To retain the full tax benefits of an FMD, no part of the deposit can be withdrawn in the first 12 months after it is deposited, except if the owner:

  • dies
  • becomes bankrupt
  • ceases to be a primary producer
  • transfers the deposit to another financial institution, or
  • is a person in an area the Minister for Agriculture, Fisheries and Forestry has declared an ‘exceptional circumstances’ area.

Bush fire regions may be included or considered for ‘exceptional circumstances’ in areas declared by the Minister. In these circumstances, a partial or full withdrawal of an FMD within a 12-month term will not result in the loss of the FMD status for the amount deposited. To confirm their ‘exceptional circumstances’ status, the deposit holder will have until three months after the year of income of the withdrawal to obtain an ‘exceptional circumstances’ certificate from the relevant state authority. This will allow primary producers to take advantage of this concession before the certificate is issued.

For other primary producers outside ‘exceptional circumstances’ areas, a partial withdrawal of an FMD within 12 months will mean that only the residual of the deposit qualifies as an FMD, provided the remaining amount is $1,000 or more and is retained in the account for at least 12 months from the date of the deposit.

You cannot claim a deduction for any part of the deposit that is withdrawn within 12 months of the deposit. Where this affects a deduction you claimed in the prior income year, you need to request an amendment of your assessment for that income year.

What if the FMD comprises both deductible and non-deductible deposits. How are withdrawals from that account treated ?

If your FMD contains both deductible and non-deductible deposits, only withdrawals of the deductible deposits are assessable income. When you make a withdrawal you are considered to have withdrawn any non-deductible amounts first.

Damage to Property

What happens if a property I own was lost or damaged?

Any insurance pay-out you receive for a destroyed or damaged house is not taxable. It does not have to be included as income in your tax return. The pay-out needs to be taken into account for capital gains tax purposes.

If the house was only ever used as your principal residence, you do not need to pay capital gains tax on any capital gain or loss.

If you acquired the house after 20 September 1985 and you used it for income-producing purposes (for example, a rental property), you will need to subtract the relevant cost base from your insurance pay-out to work out whether you made a capital gain or loss.

It is likely that you will be able to elect for rollover relief from capital gains tax or to preserve the pre-capital gains tax status of your property.

Back burning activities undertaken by the fire-fighters and bush fires have destroyed my fences. I have to incur the costs of repairing and replacing these. What are the tax consequences of this?

Fencing can be destroyed either by the natural cause of fire or intentionally by fire-fighters creating a fire break. If a primary producer replaces an existing fence to a good condition by mending it and replacing damaged sections, the cost of this ‘repair’ is deductible under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997).

If the entire fencing is replaced, the entire fencing would be considered an item of plant and depreciable under Subdivision 328-D of the ITAA 1997 for simplified tax system (STS) taxpayers – that is, it would become an asset in a general STS pool, or alternatively under Division 40 of the ITAA 1997.

The cost of fencing erected after a bushfire to exclude animals from an area affected by land degradation may be immediately deductible under Subdivision 40-G of the ITAA 1997.

Electricity and telephone poles situated on land used for primary production may also be destroyed by fire. The cost to replace the electricity and telephone poles may be written off over 10 years under section 40-645 of the ITAA 1997.

Write-Off For Expenditure On Conserving Or Conveying Water

Back burning operations and bushfires have destroyed and damaged some of my facilities for conserving or conveying water. I am only part way through the three-year write-off available to me for my expenditure on these products. How is my tax affected for:

  • the cost of repairs to these facilities?
  • costs incurred in replacing these facilities?

Regardless of whether the water facility is a structural improvement, alteration, addition or extension, such costs for water facilities used in primary production may be written off over three years as per Subdivision 40-F of the ITAA 1997.

My primary production income is virtually nil due the effects of the drought and now the bushfires. How does this affect the water conservation write-offs available to me? Do I lose them because I am writing off against no income?

If the allowable deductions of an entity engaged in a business of primary production exceed its assessable income, the entity has a loss of income for that year. How this loss is dealt with depends on the particular circumstances of each entity.

If an individual carries on a business of primary production and has a loss from its business, the loss is deductible against other income provided the other income does not exceed $40,000.

If the individual only carries on a business of primary production and has incurred a loss, the loss can be carried forward to a subsequent year.

Charitable Assistance

Is assistance from charitable organisations taxable?

No. Assistance from charitable organisations (for example, one-off and other kinds of non-periodic emergency relief payments) is not taxable.

Is assistance from Centrelink taxable?

Normal Centrelink payments (for example, most pensions and benefits) are taxable.

Centrelink will be able to tell you if any special emergency payments it may make are taxable.

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