Farm income does not arrive in twelve even pieces, and the tax system knows it. Two of the measures that exist because of that, averaging and farm management deposits, do most of the work on a Downs property. Both of them are about smoothing, and both of them reward a decision made before the money moves rather than after.
Averaging, in plain terms
Primary production averaging compares this year's taxable primary production income against the average of up to the previous four years, and adjusts your tax so a good year is not taxed as though every year will be that good. After a strong season it usually produces a small extra amount payable. After a poor one it usually produces an averaging offset, which is a credit against the tax on the rest of your income.
It applies automatically once you have been a primary producer for two years, and it keeps running unless you elect out. Electing out is permanent for ten years, so it is not a decision to make in a hurry after one unusual season.
The practical effect on a mixed operation is that off-farm income, contracting work and a spouse's wage all interact with the calculation. That is the part worth checking before the year ends rather than after.
Farm management deposits: the timing is the point
A farm management deposit is a deduction in the year you make it and assessable income in the year you take it out. Nothing is saved permanently. What you are doing is moving income from a year with a high marginal rate into a year with a low one, which on a property with a three year rainfall cycle is worth a great deal.
The rules that matter in practice: the deposit has to be held for twelve months to keep the deduction, unless a declared natural disaster or drought provision lets you draw it earlier. The total you can hold is capped at eight hundred thousand dollars. And the deduction is only available where your taxable non primary production income for the year is under one hundred thousand dollars.
- Put money in during the year the income lands and the rate is high
- Draw it in the leaner year, when it will be taxed at a lower rate
- Ring before the deposit, not after: a deposit made on 2 July belongs to a different year than one made on 29 June
Livestock accounts and the elections that go with them
A livestock trading account tracks numbers and values through the year: opening stock, natural increase, purchases, sales, deaths and killed for rations. The valuation method you elect for each class of livestock changes the taxable result, and once elected it applies until you change it, with the change itself having consequences.
Forced disposals are the other one worth knowing about. Where stock is sold because of drought, fire or flood, the profit on that forced sale can be spread across five years or used to reduce the cost of replacement stock. It has to be elected in the return for the year of the disposal, which means the conversation happens while the paddock is still empty.
What a season looks like on the Downs
A winter crop sold in November and a cattle turn-off in March put two lumps of income in the same financial year, and the fertiliser and fuel for the following crop go out in April and May of that same year. So the taxable position and the bank position point in different directions for months at a time. That is exactly the situation a twelve month cash flow forecast is for, and it is why we do the farm planning meetings in April rather than waiting for the return.
We come out to the property for these. It is easier to talk about a livestock account standing in the yards than across a desk in town.
What we do, and when
- Set the averaging and livestock position up properly in the first year we act for you
- Plan the farm management deposit timing around the expected season, before the income lands
- Review after harvest, and again before 30 June
- Have the succession conversation when you want it, because on the Downs the farm and the family finances are the same conversation
This is general information for Darling Downs businesses, not advice about your situation. Rules change and thresholds move. The first meeting is free, and it is the right place to check any of it against your own numbers.