Tax options for disposing stock

26 Jul, 2001 07:12 AM
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FARMERS forced to sell or dispose of stock due to the dry seasonal conditions may be able to spread or defer their taxable income as outlined in the Income Tax Assessment Act 97 section 385-90 to 385-125.

Income from the forced or compulsory destruction of livestock can result in higher taxable profits than would arise in a normal trading year.

Katanning Agriculture Department regional economist Jonathan Chamarette said eligible farmers could elect to spread or defer their taxable income for livestock that are disposed of as a result of drought, where the proceeds are used to buy replacement stock or to maintain breeding stock.

"Farmers who are within the current Exceptional Circumstances (EC) boundary automatically qualify for the concessional tax treatment of profits from the forced disposal of livestock, however they still have to lodge an election form," he said.

"Farmers outside the EC boundary can still apply for the concessional tax treatment by making an application for a private ruling."

A private ruling is the Commissioner of Taxation's view on how the tax law applies to an indivdual's case.

The application form for a private ruling is available from the Australian Taxation Office or can be downloaded from the organisation's website www.ato.gov.au

The applicant will have to show evidence that a 'drought' is being experienced, which can include - but is not restricted to - comparisons of current rainfall with historical rainfall records, photographic evidence and or statements from government departments.

Mr Chamarette said if an application was successful, farmers could spread or defer their tax profit.

"Growers can spread their tax profit from forced livestock disposal over five years by including the proceeds of sales with reduced tax profit as part of assessable income; and then including 20 per cent of the tax profit as assessable income for the disposal year and for each of the four successive years," he said.

"Alternatively they can elect to defer their tax profit by using it to reduce the cost of replacement livestock acquired in the disposal year or during the subsequent five years."

The proceeds from the forced disposal have to be used mainly to purchase replacement livestock or to maintain breeding stock to produce replacement livestock in order for the deferral option to be available.

Producers who choose to defer or spread their profits from the forced disposal of livestock must elect to do so before lodging the first return where the effect of the election will be relevant.

But Mr Chamarette urged producers to contact their accountant or income tax professional before making any decisions.

"Taxation is a complicated business, so it is best to work with a professional to ensure that all your individual circumstances are taken into account," he said.

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