Superannuation and Small Business Changes Helpful to Farmers

The Federal Government’s initial response to the Henry Review of Taxation will be mainly beneficial to farming businesses particularly in regard to capital allowance concessions and superannuation.

Capital Allowance Concessions

Farms are capital intensive and any increase in tax deductions from write offs of depreciable assets will provide worthwhile tax benefits.

From 1st July 2012 small businesses with turnovers below $2,000,000 will be able to write off assets valued under $5,000.

Currently , the write off limit is $1,000.

The increase in limit from $1,000 to $5,000 is likely to create some good tax breaks for many smaller farmers.

Superannuation

There are many farming families with parents involved in the farming business who have very little put aside for retirement because available cash flow has always been reinvested in the farm in order that the farm can stay viable.

In many instances, superannuation has been put off until those years when Dad and Mum are approaching retirement. Superannuation has then played a key role in the succession of the farm to the next generation. The significant tax benefits associated with superannuation have assisted the farming family to build a retirement nest egg for Dad and Mum by reducing the financial impact of superannuation contributions on the farm.

Superannuation changes announced include a continuation of the $50,000 deductible superannuation limit after 30th June 2012 which will be welcome to many farmers.

From 1st July 2012, people over 50 will be able to make tax deductible superannuation contributions of up to $50,000, provided they have superannuation benefits of under $500,000.

People over 50 can currently contribute $50,000 per annum but this level of contribution was to be reduced to $25,000 from 1st July 2012.

Other Changes

Other changes which may impact farming businesses include:

• The Company tax rate for businesses with less than $2,000,000 will reduce from 30% to 28% from 1st July 2012. This will have very little impact to many smaller farmers as their tax rates through income averaging in many cases are already less than 28% anyway.
• The Company Tax rate for all other companies shall reduce to 29% for the year ended 30th June 2014 and 28% from 1st July 2014. Many larger farming businesses will benefit from this change.
• The Superannuation Guarantee Rate will increase from 9% to 12% in a staged increase from 1st July 2013. This will add more cost to employees and contractors directly and indirectly is likely to be reflected in higher charges from almost all suppliers who have employees.
• Low income earners may receive a $500 super bonus paid into their superannuation fund where people on incomes below $37,000 contribute to superannuation. This change is designed to ensure low income earners actually receive a tax benefit from contributing to superannuation.

Media Contact:

Geoff Hall
Director, Business Services
E: geoff.hall@rsmi.com.au
T: (08) 9261 9383