The taxation laws and requirements for a taxable activity are quite clear. You need to talk to an experienced tax advisor to take the best tax position.
He will advise you on what you can and can't claim. He will look at your ownership structures, trust, companies and partnership's, and hopefully set up systems for you so you are able to keep accurate records.
A taxable activity is for the purposes of making money, or likely to make money, i.e. will the income exceed the expenditure?
By comparison, if you look at paying tax on your $50,000 salary with no taxable activity, your tax will be $16,500. So there is clearly a taxation break or advantage by running a taxable activity with a lifestyle farm.
I have not covered any GST issues, but you need to seek good advice on this area also.
In summary, you need to set up your taxable activity properly. You need to keep really good records. You need to be really honest and expect to pay tax.
Importantly, lifestyle farmers need to enjoy the environment and the business that they are in, but be realistic about your expectations.
He will advise you on what you can and can't claim. He will look at your ownership structures, trust, companies and partnership's, and hopefully set up systems for you so you are able to keep accurate records.
A taxable activity is for the purposes of making money, or likely to make money, i.e. will the income exceed the expenditure?
- You need to have a separate Balance Sheet to show your activity. You need to have that set up properly at the start.
- You declare all your income, and show on your Balance Sheet and Profit & Loss Account.
- You then claim all your expenses in creating the taxable income. You need to keep dockets and a paper trail for all transactions. Failing to keep proper records will cost you time and money at the Accountant.
- Get your returns done on time, and filed correctly.
- Be honest. I cannot emphasize this enough. Human nature is push all the boundaries. Don't be tempted.
- You need to claim what is fair and reasonable and no more. With modern information technology, the IRD have many ways of keeping a check on your taxable activity. Remember - if you are scrupulously honest with all the taxable activities, and everything you do, then you have nothing to worry about.
Income
| Lease of 10 ha to the neighbour @ $700 per ha | $7,000 |
| Sell 50 x 100 kg calves @$400 | $20,000 |
| Sell 3 fat lambs @ $60 | $180 |
| Sell 1 spare hack | $1,000 |
| Sell 200 bales of hay @ $3 | $600 |
| Total farm income | $28,780 |
| Salary say | $50,000 |
| Giving a taxable income of | $78,780 |
Less farm running costs
| Purchase 50 calves at $100 | $5,000 |
| Calf feed | $5,000 |
| Transport | $100 |
| Hay making | $200 |
| Repairs and maintenance | $3,000 |
| Accountancy | $2,000 |
| Share of phone | $2,000 |
| Vehicle expenses | $5,000 |
| Fertilizer | $4,000 |
| Sundry | $5,000 |
| Total farm running costs | $-31,300 |
Less Adminstration and Finance costs
| Interest on loan, say $300,000 @ 8% | $24,000 |
| Rate | $2,000 |
| Insurance | $2,000 |
| Hay making | $200 |
| Total adminstration and finance costs | $-28,000 |
| Total taxable income | $19,480 |
| Tax payable at a rate of 25% | $4,870 |
By comparison, if you look at paying tax on your $50,000 salary with no taxable activity, your tax will be $16,500. So there is clearly a taxation break or advantage by running a taxable activity with a lifestyle farm.
I have not covered any GST issues, but you need to seek good advice on this area also.
In summary, you need to set up your taxable activity properly. You need to keep really good records. You need to be really honest and expect to pay tax.
Importantly, lifestyle farmers need to enjoy the environment and the business that they are in, but be realistic about your expectations.
