Prior to the 2018 financial year, Inland Revenue has allowed a concession to farmers and vineyard owners that permitted a flat 25% deduction for farmhouse expenses, along with 100% deductions for interest, rates and telephone rental.
From the start of the 2018 financial year, the new rules around farmhouse expenses apply. The new rules have two tiers, Type 1 and Type 2 farms. To qualify for Type 1 rules, the value of the farmhouse (including curtilage) must be less than 20% of the total farm value. All farms and vineyards that fall outside the Type 1 determination, must follow farm Type 2 rules.
Type 1 farms now have an allowable flat rate deduction of 20% for farmhouse expenses. 100% deductions for interest and rates remain for Type 1 farms. While Type 2 farms must apportion farmhouse expenses to actual business use of the farmhouse.
Both farm types are now only allowed a default deduction of 50% for telephone rental. As for all expenses, if you can show that actual business usage is higher than the default rate, you may claim a higher amount.
The table below summarises the new rules:
|Interest and Rates Charges||General Farmhouse Expenses||Fixed Line Telephone Charges|
|Farm Type 1||100% Deduction for rates and interest expenses relating to the farm, including the farmhouse||20% Deduction unless the taxpayer can substantiate a higher deduction.||50% of telephone rental charges used for both business and private purposes, unless the taxpayer can show that 50% is too low.|
|Farm Type 2||Apportion between farm and farmhouse on a fair and reasonable basis. Deduct amounts attributable to actual business use of the farmhouse||50% of telephone rental charges used for both business and private purposes, unless the taxpayer can show that 50% is too low.|
|Farm Type Determination|
|Farm Type 1||Farming businesses where the value of the farmhouse (including curtilage and improvements) is 20% or less of the total value of the farm|
|Farm Type 2||Farming businesses where the value of the farmhouse (including curtilage and improvements) is more than 20% of the total value of the farm.|
Your friendly Advisor at WK is happy to discuss the effects of the new rules on your business, or help you determine what farm type you are.
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