New law limits tax write-off scope on farms

Press, 24 June 1983, Page 3

New law limits tax write-off scope on farms

PA Wellington Farmers who diversify into completely different types of farming may strike new tax laws limiting the size of losses they can write off on their new operation, according to the Inland Revenue Department.

Under the new Income Tax Amendment Act (No. 2), a farmer diversifying from his present farm operation can be subject to a ?10,000 limit on tax write-off for the new activity — with two exceptions. The act lays down “specified activities” in farming. If the farmer diversifies within that specified activity, whether on his own farm or another property, he does not face the $lO,OOO limit.

For instance, a fanner wanting to diversify from sheepfarming into another form of pastoralism, such as deer or goats, would not run up against the limit because both activities fall within the same specified activity. But a dairy farmer diversifying into kiwifruit would be allowed to write off only ?10,000 of his kiwifruit costs against his dairying income. A mussel farmer wanting to start a deer farm would face the same limit.

One of the exceptions is a farmer who has gained his livelihood from one property for at least five years. He is free to diversify into any other activity, provided it is on his existing farm. But if he buys another property and starts a different activity there, he will strike the $lO,OOO clause.

The other exception is diversification into “complementary” activities. For ex-

ample, a kiwifruit farmer could write off the costs of putting beehives on his orchard against his kiwifruit income because that would be a complementary activity, although both are different specified activities.

It is up to the Commissioner of Inland Revenue to decide what a complementary activity is. The department says it can only administer the law and not comment on whether it is fair or unfair. However, a spokesman asked why a dairy farmer who bought into a kiwifruit orchard should be treated differently from a lawyer or accountant who did the same thing.